The year-end balance sheet and residual profit and loss sharing percentages for the Gary,Harold,and Ivan partnership on December 31,2011,are as follows: The partners agree to liquidate the business and distribute cash when it becomes available.A cash distribution plan is developed with vulnerability rankings for the Gary,Harold and Ivan partnership.After outside creditors are paid,the cash available will initially go to

Question

The year-end balance sheet and residual profit and loss sharing percentages for the Gary,Harold,and Ivan partnership on December 31,2011,are as follows:  The partners agree to liquidate the business and distribute cash when it becomes available.A cash distribution plan is developed with vulnerability rankings for the Gary,Harold and Ivan partnership.After outside creditors are paid,the cash available will initially go to

Quizplus · Accepted Answer

C)
Vulnerability ranks:
Gary equity ($70,000 - $50,000)/.25 = $80,000 = 1
Harold equity ($80,000 + $50,000)/.25 = $520,000 = 3
Ivan equity ($120,000/.5)= $240,000 = 2
Assumed loss absorption:
25% 25% 50%
Gary Harold Ivan Total
Equities $20,000 $130,000 $120,000 $270,000
Loss to eliminate
Gary (20,000)(20,000)(40,000)(80,000)
Subtotals $ 0 $110,000 $80,000 $190,000
Loss to eliminate
Ivan (40,000) (80,000)(120,000)
Subtotals $ 70,000 $ 0 $ 70,000

The Year-End Balance Sheet and Residual Profit and Loss Sharing