Partners X, Y and Z have capital balances of $80, 000, $180,000 and $60,000 respectively.Immediately prior to liquidation.Total remaining assets have a book value of $320,000 and assume liabilities have been paid.There is one remaining asset with a fair market value of $70,000.All three partners agree to share profit and loss equally.Z wishes to take the asset with him and start a new business and would accept $70,000 in cash; the remaining partners agree this would be fair.How much cash in addition to the asset would first be distributed to Z before any of the other partners receive anything?

Question

Quizplus · Accepted Answer

Z's capital account balance is $60,000. Since the partners agreed that Z taking the asset valued at $70,000 is fair, Z should receive an additional $10,000 in cash to equalize the transaction. However, the question asks for the amount of cash Z would receive before any other distributions, not the difference to balance the asset's value. Given the equal profit and loss sharing agreement, each partner is entitled to 1/3 of the total capital ($320,000), which is approximately $106,666.67 each. Since Z's capital account is $60,000 and he is taking an asset worth $70,000, he has already received more than his share. Therefore, no additional cash would be distributed to Z before other partners; instead, Z would owe $30,000 to balance the distribution among partners.

Partners X, Y and Z Have Capital Balances of $80