Partners Ken and Macki each have a $40,000 capital balance and share income and losses in the ratio of 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $60,000, and both partners agree to make up any capital deficits with personal cash contributions, Partner Macki will eventually receive cash of

Question

Quizplus · Accepted Answer

First, we need to calculate the total capital balance of the partnership:
Ken's share: 3/5 x $80,000 (total capital) = $48,000
Macki's share: 2/5 x $80,000 (total capital) = $32,000
If the noncash assets are sold for $60,000, the partnership will have a total of $80,000 cash ($20,000 + $60,000) and $60,000 in liabilities. This means there is a total capital of $20,000 ($80,000 - $60,000).

Each partner's share of the total capital would be:
Ken's share: 3/5 x $20,000 = $12,000
Macki's share: 2/5 x $20,000 = $8,000

Since Macki's current capital account balance is $40,000, which is $24,000 less than her share of the total capital, she would need to make a cash contribution of $24,000 to bring her capital account up to her share of the total capital.

Therefore, when all is said and done, Macki will receive $8,000 (her share of the total capital) - $24,000 (her required capital contribution) = -$16,000. This means that she won't receive any cash at the end of the transaction, and her capital account will have a deficit of $16,000.

Partners Ken and Macki Each Have a $40,000 Capital Balance