The balance sheet of Ryan,James and Peter firm as at 30 June 2017 is given below.

Ryan,Peter and James share profits in the ratio 3:2:1.They have decided to liquidate the partnership with immediate effect.The furniture and the equipment were sold at a cumulative loss of $6000.The accounts receivable were duly received in cash and the other assets were written off as worthless.The accounts payable and other liabilities were paid off at book value.James argued that he should receive a portion of the remaining cash,but Peter and Ryan argued otherwise.How much cash should James receive or pay?

Question

The balance sheet of Ryan,James and Peter firm as at 30 June 2017 is given below.

Ryan,Peter and James share profits in the ratio 3:2:1.They have decided to liquidate the partnership with immediate effect.The furniture and the equipment were sold at a cumulative loss of $6000.The accounts receivable were duly received in cash and the other assets were written off as worthless.The accounts payable and other liabilities were paid off at book value.James argued that he should receive a portion of the remaining cash,but Peter and Ryan argued otherwise.How much cash should James receive or pay?

Quizplus · Accepted Answer

To begin the liquidation process, we need to first determine the total assets and liabilities.

Assets:
Cash (given) = $30,000
Accounts Receivable (given) = $4,000
Inventory (given) = $16,000
Furniture and Equipment (sold at a loss) = $9,000 - $6,000 = $3,000
Total Assets = $53,000

Liabilities:
Accounts Payable (given) = $6,000
Other Liabilities (given) = $5,000
Total Liabilities = $11,000

Net Assets = Total Assets - Total Liabilities = $53,000 - $11,000 = $42,000

Next, we need to distribute the net assets according to the profit-sharing ratio of 3:2:1.

Ryan's Share = 3/6 * $42,000 = $21,000
Peter's Share = 2/6 * $42,000 = $14,000
James's Share = 1/6 * $42,000 = $7,000

However, we need to consider the loss on the sale of furniture and equipment.

Ryan's Share of Loss = 3/6 * $6,000 = $3,000
Peter's Share of Loss = 2/6 * $6,000 = $2,000
James's Share of Loss = 1/6 * $6,000 = $1,000

Revised Shares:
Ryan's Revised Share = $21,000 - $3,000 = $18,000
Peter's Revised Share = $14,000 - $2,000 = $12,000
James's Revised Share = $7,000 - $1,000 = $6,000

Since the accounts receivable were received in cash, the only remaining asset is the cash balance.

Total Cash after Sale and Receivables Collection = $30,000 + $4,000 - $3,000 = $31,000

Therefore, each partner should receive their revised share of $18,000, $12,000 and $6,000, respectively.

Ryan and Peter will not have any issues, as they will receive their full revised shares.

However, James's revised share is $6,000, but he has already received $4,167 ($30,000 + $4,000 - $6,000 - $11,000 = $17,000/4). Therefore, he needs to pay back the difference of $1,833 to the partnership ($6,000 - $4,167 = $1,833).

Hence, the answer is C) James should pay $1,833.

The Balance Sheet of Ryan,James and Peter Firm as at 30