In liquidation, balances prior to the distribution of cash to the partners are: Cash $306,000; Peterson, Capital $168,000; Staley, Capital $156,000, and Klugman, Capital $18,000 deficiency. The income ratio is 6:2:2, respectively. How much cash should be distributed to Staley if Klugman does not pay his deficiency?

Question

Quizplus · Accepted Answer

First, we need to determine the total capital of the partnership, which is $342,000 ($168,000 + $156,000 + $18,000). Then, we need to calculate the income distribution for each partner: 
- Peterson: 6/10 x $306,000 = $183,600 
- Staley: 2/10 x $306,000 = $61,200 
- Klugman: 2/10 x $306,000 = $61,200

However, since Klugman has a deficiency of $18,000, his share of the distribution is reduced to $43,200 ($61,200 - $18,000). Therefore, the total amount to be distributed is $287,400 ($183,600 + $61,200 + $43,200).

Finally, we can calculate Staley's share by multiplying his income ratio by the total amount to be distributed: 
2/10 x $287,400 = $57,480

However, since Klugman cannot pay his deficiency, Staley will also need to take a portion of Klugman's share: 
$57,480 + $9,000 (half of Klugman's deficiency) = $66,480

Therefore, the total amount of cash that should be distributed to Staley is $66,480, which corresponds to choice (B).

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