Partners Ken and Macki each have a $40,000 capital balance and share income and losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $60,000, and both partners agree to make up an capital deficits with personal cash contributions, Partner Macki will eventually receive cash of

Question

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The total assets before the sale of noncash assets are $140,000 ($20,000 cash + $120,000 noncash assets). After the sale of noncash assets, the assets would be $80,000 ($20,000 cash + $60,000 cash from the sale). The total liabilities remain the same at $60,000. Therefore, the new capital balance would be $20,000 ($80,000 assets - $60,000 liabilities).

Partner Macki's share of this new capital balance based on the 3:2 sharing ratio would be $8,000, which is less than her current capital balance of $40,000. This means she has a capital deficit of $32,000 ($40,000 - $8,000).

Since both partners have agreed to make up for any capital deficits with personal cash contributions, Macki would need to contribute $16,000 ($32,000 capital deficit x 0.5 Macki's sharing ratio) to bring her capital balance back to $40,000.

After this contribution, Macki's capital balance would be $24,000 ($40,000 initial balance - $16,000 contribution). However, since there is only $20,000 cash available, Macki would not receive any cash distribution.

Partners Ken and Macki Each Have a $40,000 Capital Balance