Ivey and Balzac had a partnership that distributed profits in a ratio of 1:3 respectively. At the end of 2013, they agreed to liquidate the partnership. Prior to liquidation, the partnership had Cash of $50 000, Inventory of $75 000, Equipment (net)of $235 000, and no payables. Partner capital balances were: Ivey: $100 000 Balzac: $260 000
The inventory was sold for $59 000 and the equipment was sold for $243 000. How much cash was paid to Ivey in the final settlement?

Question

Quizplus · Accepted Answer

The profit ratio is 1:3, so Ivey's share of the profit is 1/4 and Balzac's share is 3/4. The total profit is the difference between the total assets and the total liabilities, which is $50,000 + $75,000 + $235,000 - $0 = $360,000. Ivey's share of the profit is 1/4 * $360,000 = $90,000. His capital balance is $100,000, so he will receive a total of $100,000 + $90,000 = $190,000. After the inventory and equipment are sold, the partnership has $50,000 + $59,000 + $243,000 = $352,000 in cash. Ivey's share of the cash is 1/4 * $352,000 = $88,000. However, he has already received $100,000, so he will only receive an additional $88,000 - $100,000 = $8,000 in cash. Therefore, the total amount of cash paid to Ivey in the final settlement is $100,000 + $8,000 = $98,000.

Ivey and Balzac Had a Partnership That Distributed Profits in a Ratio