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 Phillips receive in the final settlement?

Question

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Phillips should receive $12,000 in the final settlement. The equipment is sold for $100,000, which is $60,000 less than its book value. This loss is shared according to the profit and loss sharing ratio (4:3:3). Phillips' share of the loss is $18,000 (3/10 of $60,000). Subtracting this from Phillips' capital account ($30,000 - $18,000), Phillips should receive $12,000.

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