In liquidation balances prior to the distribution of cash to the partners are: Cash $204000; Paley Capital $112000; Stengel Capital $104000 and King Capital $12000 deficiency. The income ratio is 6:2:2 respectively. How much cash should be distributed to Stengel if King does not pay his deficiency?

Question

Quizplus · Accepted Answer

King's deficiency means his capital account has a negative balance of $12,000, which he is unable to pay. This deficiency must be absorbed by Paley and Stengel according to their income ratio of 6:2:2. The total deficiency absorbed is $12,000. Paley absorbs 6/8 of the deficiency, and Stengel absorbs 2/8 of the deficiency. Stengel's share of the deficiency is $12,000 * (2/8) = $3,000. Stengel's initial capital is $104,000. After absorbing part of King's deficiency, Stengel's adjusted capital is $104,000 - $3,000 = $101,000, which is the amount of cash to be distributed to Stengel.

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