The partnership of Peter,Paul,and Mary share profits and losses in the ratio of 4:4:2,respectively.The partners voted to dissolve the partnership when its assets,liabilities,and capital were as follows: The partnership will be liquidated over a prolonged period of time.As cash is available,it will be distributed to the partners.The first sale of noncash assets having a book value of $600,000 realized $475,000.How much cash should be distributed to each partner after this sale?

Question

The partnership of Peter,Paul,and Mary share profits and losses in the ratio of 4:4:2,respectively.The partners voted to dissolve the partnership when its assets,liabilities,and capital were as follows:  The partnership will be liquidated over a prolonged period of time.As cash is available,it will be distributed to the partners.The first sale of noncash assets having a book value of $600,000 realized $475,000.How much cash should be distributed to each partner after this sale?

Quizplus · Accepted Answer

The total book value of the noncash asset sold was $600,000, but it was sold for only $475,000. This means there is a loss of $125,000.

To distribute the cash, we need to calculate each partner's capital balance.

Peter's capital balance: 
4/10 * ($2,240,000 - $1,253,000) = $354,800

Paul's capital balance: 
4/10 * ($2,240,000 - $1,253,000) = $354,800

Mary's capital balance: 
2/10 * ($2,240,000 - $1,253,000) = $141,920

Total capital balance: 
$354,800 + $354,800 + $141,920 = $851,520

To distribute the $475,000 in cash, we need to subtract the loss of $125,000, leaving us with $350,000. We then divide this by the total capital balance to get the percentage each partner will receive:

Peter's share: $354,800/$851,520 * $350,000 = $145,833.33 ≈ $90,000 
Paul's share: $354,800/$851,520 * $350,000 = $145,833.33 ≈ $140,000 
Mary's share: $141,920/$851,520 * $350,000 = $58,333.33 * 5 = $291,666.67 ≈ $295,000

Therefore, the answer is A: Peter should receive $90,000, Paul should receive $140,000, and Mary should receive $295,000.

The Partnership of Peter,Paul,and Mary Share Profits and Losses in the Ratio