Question

The partnership of Hendrick, Mitchum, and Redding has the following account balances: Cash $ 53,000 Liabilities $ 41,000 Noncash assets 152,000 Hendrick, capital 123,000 Mitchum, capital 87,000 Redding, capital (46,000 ) This partnership is being liquidated. Hendrick and Mitchum are each entitled to 40 percent of all profits and losses with the remaining 20 percent going to Redding. What is the maximum amount that Redding might have to contribute to this partnership because of the deficit capital balance? How should the $12,000 cash that is presently available in excess of liabilities be distributed? If the noncash assets are sold for a total of $67,000, what is the minimum amount of cash that Hendrick could receive?

Answer 1

1. Share from loss of non cash asset ($152,000 x 20%) = $30,400
Add: Redding capital = $46,000
  Maximum amount Redding to contribute = $76,400

2. Non cash asset=$152,000
Redding capital=$46,000
  Total loss = $197,000

Distributed to Handrick and mitchum in the ratio of 1:1 . So each $98,500. So mitchum capital eliminate with loss. So whole 12,000 will be given to Handrick.

3. Handrick will receive $57,500 ($12,000+$45,500)

Explanation:

Non cash asset loss $85,000(152000 - 67000) will be distributed between three partners in ratio 4:4:2.

Handrick (85000 x 40%) = $34,000

Mitchum = $34,000

Redding (85000 x 20%)=$17,000

Now Redding deficiency will be $63,000(46000+17000) which will born by Hendrick and Mitchum in ratio of 4:4. Each $31,500.

So Hendrick remain capital:

=$123000-12000-34000-31,500 = 45,500