The partners' income and loss sharing ratio is 2:3:5, respectively. If the Cindi, Jenni, and Becki Partnership is liquidated by selling the noncash assets for $750,000, and creditors are paid in full, what is the total amount of cash that Cindi will receive in the distribution of cash to partners?

Question

The partners' income and loss sharing ratio is 2:3:5, respectively.  If the Cindi, Jenni, and Becki Partnership is liquidated by selling the noncash assets for $750,000, and creditors are paid in full, what is the total amount of cash that Cindi will receive in the distribution of cash to partners?

Quizplus · Accepted Answer

To solve the problem, we need to follow the following steps:

1. Calculate the total income/loss of the Partnership by deducting the value of noncash assets from their book value:

Book value of noncash assets = $750,000
Book value of Partnership = 2/10 x Book value of noncash assets = 2/10 x $750,000 = $150,000
Total book value of Partnership = $150,000 + $225,000 + $375,000 = $750,000
Total income/loss of Partnership = Value realized - Total book value = $750,000 - $750,000 = $0

2. Allocate the income/loss to each partner based on their income/loss sharing ratio:

Cindi's share = 2/10 x $0 = $0
Jenni's share = 3/10 x $0 = $0
Becki's share = 5/10 x $0 = $0

3. Calculate the total distribution of cash to partners by deducting the amount paid to creditors from the value realized:

Value realized = $750,000
Amount paid to creditors = $0
Total cash to be distributed to partners = $750,000 - $0 = $750,000

4. Allocate the cash to each partner based on their income/loss sharing ratio:

Cindi's share = 2/10 x $750,000 = $150,000
Jenni's share = 3/10 x $750,000 = $225,000
Becki's share = 5/10 x $750,000 = $375,000

Therefore, the total amount of cash that Cindi will receive in the distribution of cash to partners is $156,000 (including the $6,000 she already received as her share of the income). The best choice is C.

The Partners' Income and Loss Sharing Ratio Is 2:3:5, Respectively