Question

The balance sheet for the Delphine, Xavier, and Olivier partnership follows:

Cash	$	69,360		Liabilities	$	46,500
Noncash assets		126,000		Delphine, capital		58,680
				Xavier, capital		53,000
				Olivier, capital		37,180
Total assets	$	195,360		Total liabilities and capital	$	195,360

Delphine, Xavier, and Olivier share profits and losses in the ratio of 3:4:3, respectively. The partners have agreed to terminate the business and estimate that $14,600 in liquidation expenses will be incurred.

What is the amount of cash that safely can be paid to partners prior to liquidation of noncash assets?

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Cash that safely can be distributed

Which partner should receive the cash distribution from (a)?

Which partner should receive the cash distribution from (a)?

	Delphineradio Xavierradio Olivierradio

Answer 1

Accounting for the liquidation of a partnership involves four steps as follows:
1. Sell non cash assets for cash.
In the question there is no information about for how much amount the non-cash assets have been sold. Hence it has been assumed that the non-cash assets have been sold to the value shown in the balance sheet. i.e. $126,000 less the liquidation expenases of $14,600
	$126,000
Less	-$14,600
	$111,400
2. Allocate any gain or loss on the sale of non cash assets to each partner using the profit sharing ratio.
Hence, $114,400 has to be allocated to partners in profit sharing ratio	Ratio	Share	Calculation
Delphine	3	$33,420	$111,400/10*3
Xavier	4	$44,560	$111,400/10*4
Olivier	3	$33,420	$111,400/10*3
	10	$111,400
3. Pay any liabilities of the partnership.
With the Cash		$69,360
Pay Laibilities		-$46,500
4. Distribute the remaining cash to the partners using the capital ratio.		$22,860	(A)
Partners	Captial(B)	Ratio ( C)	Amount D = A*C	Calculation
Delphine	$58,680	39%	$9,011	($58,680/$148,860)*100 = 39%
Xavier	$53,000	36%	$8,139	($53,000/$148,860)*100 = 36%
Olivier	$37,180	25%	$5,710	($37,180/$148,860)*100 = 25%
	$148,860		$22,860
Cash to be received by the Partners
Partners	Share in Non-Cash Assets Proceeds	Share in Balance Cash	Total
	A	B	C =A+B
Delphine	$33,420	$9,011	$42,431
Xavier	$44,560	$8,139	$52,699
Olivier	$33,420	$5,710	$39,130
	$111,400	$22,860	$22,860