A partnership has assets of cash of $10,000 and equipment with a book value of $160,000. All liabilities have been paid. The partners' capital accounts are as follows Michael $80,000, Gregory $60,000 and Phillips $30,000. The partners share profits and losses on a 4:3:3 basis. If the equipment is sold for $100,000 and there are no liquidation expenses what amount should Phillips receive in the final settlement?

Question

Quizplus · Accepted Answer

The equipment is sold for $100,000, resulting in a $60,000 loss ($160,000 book value - $100,000 sale price). This loss is shared among the partners in a 4:3:3 ratio. Phillips' share of the loss is $18,000 (3/10 of $60,000). His capital account after the loss is $12,000 ($30,000 - $18,000). Phillips receives $12,000 in the final settlement.

A Partnership Has Assets of Cash of $10,000 and Equipment