In liquidation balances prior to the distribution of cash to the partners are: Cash $765000; Peterson Capital $420000; Laney Capital $390000 and Howell Capital $45000 deficiency. The income ratio is 6:2:2 respectively. How much cash should be distributed to Laney if Howell does not pay his deficiency?

Question

Quizplus · Accepted Answer

First, calculate the total capital: 
Peterson Capital + Laney Capital + Howell Capital = $420000 + $390000 + $45000 = $855000

Next, determine the income distribution: 
6:2:2 ratio means Peterson Capital should receive 6/10 of the income, Laney Capital should receive 2/10, and Howell Capital should receive 2/10.

Calculate the income amount for each partner: 
Peterson Capital = (6/10) * (Cash - Howell Deficiency) = (6/10) * ($765000 - $45000) = $429000 
Laney Capital = (2/10) * (Cash - Howell Deficiency) = (2/10) * ($765000 - $45000) = $134400 
Howell Capital = (2/10) * (Cash - Howell Deficiency) = (2/10) * ($765000 - $45000) = $134400

We know that Howell cannot pay his deficiency, so we need to adjust for that. 
$765000 - $45000 = $720000 is available for distribution. 
Peterson will receive $429000, leaving $291000. 
If Howell paid his deficiency, the remaining $291000 would be split equally between Laney and Howell, resulting in $145500 each. 
Since Howell cannot pay his deficiency, Laney will receive the full remaining amount: $291000. 
Therefore, Laney should receive a total of $134400 + $291000 = $425400. However, we need to subtract Howell's deficiency from Laney's share: 
$425400 - $45000 = $380400. 
Therefore, Laney should receive $378750.

In Liquidation Balances Prior to the Distribution of Cash to the Partners