A partnership has assets of cash of $10,000 and equipment with a book value of $160,000. All liabilities have been paid. The partners' capital accounts are as follows Michael $80,000, Gregory $60,000 and Phillips $30,000. The partners share profits and losses on a 4:3:3 basis. If the equipment is sold for $100,000 and there are no liquidation expenses what amount should Michael receive in the final settlement?

Question

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Michael's share of the loss on the sale of equipment is 4/10 of $60,000, or $24,000. His capital account balance after the loss is $80,000 - $24,000 = $56,000. After the equipment is sold, the partnership has cash of $10,000 + $100,000 = $110,000. Michael's share of the cash is 4/10 of $110,000, or $44,000. Therefore, Michael should receive $56,000 + $44,000 = $100,000 in the final settlement.

A Partnership Has Assets of Cash of $10,000 and Equipment