Partners Eric and Jeremy each have $7,000 capital balances and share income and losses in a 2:1 ratio for Eric and Jeremy, respectively. Cash equals $3,000, noncash assets are $16,000, and liabilities are $5,000. If all the noncash assets are sold for $2,000, and each partner is personally insolvent, Jeremy eventually will receive cash of:
A) $0.
B) $6,000.
C) $4,667.
D) $12,000.

Question

Quizplus · Accepted Answer

When the noncash assets are sold for $2,000 and added to the existing cash of $3,000, the total cash available is $5,000. After paying off liabilities of $5,000, there is no cash left to distribute to the partners, making Jeremy's eventual cash receipt $0.

Partners Eric and Jeremy Each Have $7,000 Capital Balances and Share