The year-end balance sheet and residual profit and loss sharing percentages for the Gary,Harold,and Ivan partnership on December 31,2014,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 31,2014,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

According to the residual profit and loss sharing percentages, Harold is entitled to 50% of the residual profit or loss. Therefore, he would be entitled to receive the first $70,000 of available cash after outside creditors are paid. Gary is entitled to 30% of the residual profit or loss, so he would receive the next portion of available cash after Harold, which would be $20,000. Ivan is entitled to 20% of the residual profit or loss, so he would receive the remaining cash available after Harold and Gary. However, since the question only asks about the initial distribution of cash, the correct answer is C, which is the amount Harold would receive first.

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