The balance sheet of Ryan and Peter firm as on December 31, 2014, is given below. $$\begin{array} { | l | r | l | r | }
\hline { \text { Assets } } & &{ \text { Liabilities } } & \
\hline \text { Cash } & \$ 15,000 & \text { Accounts Payable } & \$ 15,000 \
\hline \text { Accounts Receivable } & 12,000 & \text { Other liabilities } & 25,000 \
\hline \text { Furniture } & 25,000 & \text { Partner's Equity } & \
\hline \text { Equipment } & 40,000 & \text { Ryan, Capital } & 30,000 \
\hline \text { Other assets } & \underline { 8,000 } & \text { Peter, Capital } & \underline { 30,000 } \
\hline \text { Total assets } & \$ 100,000 & \text { Total liabilities and partner's equity } & \$ 100,000 \
\hline
\end{array}$$
Ryan and Peter share profits in the ratio 3:2. They have decided to liquidate the partnership with immediate effect. The furniture and the equipment were sold at a cumulative loss of $5,000. The accounts receivable were duly received in cash and the other assets were written off as worthless. The accounts payable and other liabilities were paid off at book value. The firm's accountant distributed the remaining cash between Ryan and Peter equally. However, Peter initiated a lawsuit claiming that his share was greater than Ryan's. How much should Peter have received?

Question

The balance sheet of Ryan and Peter firm as on December 31, 2014, is given below. $$\begin{array} { | l | r | l | r | } 
\hline  { \text { Assets } } & &{ \text { Liabilities } } & \
\hline \text { Cash } & \$ 15,000 & \text { Accounts Payable } & \$ 15,000 \
\hline \text { Accounts Receivable } & 12,000 & \text { Other liabilities } & 25,000 \
\hline \text { Furniture } & 25,000 & \text { Partner's Equity } & \
\hline \text { Equipment } & 40,000 & \text { Ryan, Capital } & 30,000 \
\hline \text { Other assets } & \underline { 8,000 } & \text { Peter, Capital } & \underline { 30,000 } \
\hline \text { Total assets } & \$ 100,000 & \text { Total liabilities and partner's equity } & \$ 100,000 \
\hline
\end{array}$$
 Ryan and Peter share profits in the ratio 3:2. They have decided to liquidate the partnership with immediate effect. The furniture and the equipment were sold at a cumulative loss of $5,000. The accounts receivable were duly received in cash and the other assets were written off as worthless. The accounts payable and other liabilities were paid off at book value. The firm's accountant distributed the remaining cash between Ryan and Peter equally. However, Peter initiated a lawsuit claiming that his share was greater than Ryan's. How much should Peter have received?

Quizplus · Accepted Answer

First, we need to calculate the total loss from selling the furniture and equipment: $5,000.

Next, we need to distribute the remaining assets. The accounts payable and other liabilities were paid off at book value, which leaves us with $50,000 (i.e. the cash and the accounts receivable).

The accounts receivable were received in cash, so we add $12,000 to the cash, bringing it to $62,000.

The other assets were written off as worthless, so we don't need to consider them anymore.

Now, we need to distribute the cash to Ryan and Peter according to their profit-sharing ratio of 3:2.

Total profit = Total assets (including the loss) - Total liabilities
Total profit = $100,000 - $40,000 (accounts payable) - $25,000 (other liabilities) = $35,000

Ryan's share of the profit = 3/5 * $35,000 = $21,000
Peter's share of the profit = 2/5 * $35,000 = $14,000

When we add the remaining cash of $62,000 and subtract the losses of $5,000, we get a total of $57,000. If we divide this equally between Ryan and Peter, each of them will receive $28,500.

However, Peter is claiming that his share is greater than Ryan's. Since Peter's share of profits is already less than Ryan's, and both partners are receiving the remaining cash equally, the only way Peter could claim a greater share is if he had a higher initial capital investment than Ryan.

Looking at the balance sheet, we see that Peter and Ryan both had an initial capital investment of $30,000. Therefore, their capital did not affect the final distribution of cash.

Thus, Peter should have received $28,500 along with Ryan, and his lawsuit has no merit.

Therefore, the answer is C. $24,800.

The Balance Sheet of Ryan and Peter Firm as on December