A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively.

Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time.
If the assets could be sold for $228,000, what is the minimum amount that Ding's creditors would have received?

Question

A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively.

Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time.
If the assets could be sold for $228,000, what is the minimum amount that Ding's creditors would have received?

Quizplus · Accepted Answer

First, we need to calculate the total capital balance of the partnership: 
4x + 2y + 2z + 2w = total capital 
4x + 2x + 2x + 2x = 10x 
10x = total capital

Since Ding is insolvent, he will not receive any portion of the partnership's assets. Therefore, his capital balance of x will be used to pay off his creditors. 
If the partnership liquidates and sells its assets for $228,000, the remaining creditors will receive $203,000 ($228,000 - $25,000 claim). 
Ding's share of the total capital is 1/10, so his share of the $203,000 for distribution to the other partners will be $20,300. 
However, Ding's creditors have a claim of $25,000, so they will only receive $2,500 from Ding's portion. 
Therefore, the minimum amount that Ding's creditors would receive is $2,500.

A Local Partnership Was Considering the Possibility of Liquidation Since