The following account balances were available for the Perry, Quincy, and Renquist partnership just before it entered liquidation: Included in Perry's capital balance is a $20,000 partnership loan owed to Perry. Perry, Quincy, and Renquist shared profits and losses in a ratio of 2:4:4. Liquidation expenses were expected to be $15,000. All partners were solvent.
What would be the minimum amount for which the noncash assets must have been sold, in order for Quincy to receive some cash from the liquidation?

Question

The following account balances were available for the Perry, Quincy, and Renquist partnership just before it entered liquidation:  Included in Perry's capital balance is a $20,000 partnership loan owed to Perry. Perry, Quincy, and Renquist shared profits and losses in a ratio of 2:4:4. Liquidation expenses were expected to be $15,000. All partners were solvent.
What would be the minimum amount for which the noncash assets must have been sold, in order for Quincy to receive some cash from the liquidation?

Quizplus · Accepted Answer

First, we need to calculate the total capital balance of the partnership: 
Perry's capital balance = $70,000 (given) - $20,000 (partnership loan) = $50,000 
Quincy's capital balance = $140,000 
Renquist's capital balance = $140,000

Total capital balance = $50,000 + $140,000 + $140,000 = $330,000

Next, we need to subtract the expected liquidation expenses from the total capital balance: 
$330,000 - $15,000 = $315,000

This leaves $315,000 available to distribute to the partners.

According to the profit-sharing ratio, Quincy is entitled to 4/10 of the remaining capital balance: 
4/10 x $315,000 = $126,000

However, Quincy will only receive cash if there is enough after all noncash assets are sold and all debts are paid off.

The minimum amount for which the noncash assets must have been sold to have enough to pay Quincy is: 
$126,000 + $15,000 (liquidation expenses) = $141,000

Therefore, the noncash assets must have been sold for any amount in excess of $190,000 ($141,000 + $49,000 cash balance remaining after paying off debts).

The Following Account Balances Were Available for the Perry, Quincy