Scenario 14-2
Assume that a partnership had assets with a book value of $240,000 and a market value of $195,000, outside liabilities of $70,000, loans payable to partner Able of $20,000, and capital balances for partners Able, Baker, and Chapman of $70,000, $30,000, and $50,000.
-Refer to Scenario 14-2. How much would Able receive upon liquidation of the partnership assuming profits and losses are allocated equally?

Question

Quizplus · Accepted Answer

The first step in determining Able's share is to calculate the total capital balance, which is $150,000 ($70,000 + $30,000 + $50,000). If profits and losses are allocated equally, each partner would be entitled to 1/3 of the remaining assets after outside liabilities are paid off. The remaining assets in this case are $145,000 ($195,000 market value - $70,000 outside liabilities - $20,000 loan payable to Able). Therefore, Able's share would be $48,333 ($145,000 ÷ 3), and subtracting his loan payable of $20,000, he would receive $28,333. However, since his capital balance is already $70,000, he would not receive any additional payment upon liquidation. Therefore, the correct answer is D, $55,000.

Scenario 14-2 Assume That a Partnership Had Assets with a Book Value