Question

The partnership of Winn, Xie, Yang, and Zed has the following balance sheet:

Cash	$	46,000	Liabilities	$	57,000
Other assets		285,000	Winn, capital (50% of profits and losses)		76,000
			Xie, capital (30%)		96,000
			Yang, capital (10%)		56,000
			Zed, capital (10%)		46,000

Zed is personally insolvent, and one of his creditors is considering suing the partnership for the $3,000 that is currently owed. The creditor realizes that this litigation could result in partnership liquidation and does not wish to force such an extreme action unless Zed is reasonably sure of obtaining at least $3,000 from the liquidation.

Determine the amount for which the partnership must sell the other assets to ensure that Zed receives $3,000 from the liquidation. Liquidation expenses are expected to be $31,000. (Do not round intermediate calculations.)

Answer 1

Solution

Winn, Xie, Yang and Zed Partnership

During partnership liquidation, the partners receive the residual money in proportion to the respective capital before liquidation.

Capital ratio of Zed in the partnership = zed capital/total capital

Zed Capital = $46,000

Total capital = $274,000

Zed’s capital ratio = 46/274 = 0.1679

Amount needed to pay off Zed’s personal debts = $3,000

The residual amount to be left for distribution to partners = 3,000/0.1679 = $17,870

Total realization from total assets = amount to be distributed to partners + liquidation expenses + liabilities

= 17,870 + 31,000 + 57,000 = $105,870

The minimum amount to be realized from Other Assets = total realization required – Cash balance

= 105,870 – 46,000 = $59,870

Hence, the minimum amount realized from other assets = $59,870