A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. $$\begin{array} { l r }
\text { Ding, capital } & \$ 60,000 \
\text { Laurel, capital } & 67,000 \
\text { Ezzard, capital } & 17,000 \
\text { Tillman, capital } & 96,000
\end{array}$$ Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time. If the assets could be sold for $228,000, what is the minimum amount that Laurel's creditors would have received?

Question

A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. $$\begin{array} { l r } 
\text { Ding, capital } & \$ 60,000 \
\text { Laurel, capital } & 67,000 \
\text { Ezzard, capital } & 17,000 \
\text { Tillman, capital } & 96,000
\end{array}$$ Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time. If the assets could be sold for $228,000, what is the minimum amount that Laurel's creditors would have received?

Quizplus · Accepted Answer

Laurel's capital balance is $67,000. After Ding's creditors are paid, the remaining assets are $228,000 - $25,000 = $203,000. Laurel's share of the remaining assets is 2/10 * $203,000 = $40,600. However, Laurel's creditors would only receive a minimum of $38,250 because Laurel's capital balance is less than her share of the remaining assets.

A Local Partnership Was Considering the Possibility of Liquidation Since