Question

A partnership has liquidated all assets but still reports the following account balances: Beck, loan $ 5,500 Cisneros, capital (40%) 3,600 Beck, capital (20%) (12,200 ) (deficit) Sadak, capital (10%) (8,200 ) (deficit) Emerson, capital (20%) 15,500 Page, capital (10%) (6,200 ) (deficit) The partners split profits and losses as follows: Cisneros, 40 percent; Beck, 20 percent; Sadak, 10 percent; Emerson, 20 percent; and Page 10 percent. Assuming that all partners are personally insolvent except for Sadak and Emerson, how much cash must Sadak now contribute to this partnership?

Answer 1

Beck and Page are both insolvent and have negative capital balances after offsetting the loan from the Beck totaling = 12200 + 6200 - 5500 = $12,900

Absorption by the other partner of these losses would be as follows on a 40:10:20 basis

Partner	Share of loss	New capital Balances ($)
Cisneros	8,200 x 40/70 = $4,686	4,686 - 3,600 = $1,086
Sadak	8,200 x 10/70 = $1,171	1,171+8,200 = ($9,371)
Emerson	8,200 x 20/70 = $2,343	2,343 - 15,500 = $13,157

Cisneros who is also insolvent now has a deficit capital of $1,086 that would have to be absorbed by Sadak and Emerson on a 10:20 basis:

Partner	Share of loss	New capital Balances ($)
Sadak	1,086 x 10/30 = $362	($9,371) - 362 = ($9,009)
Emerson	1,086 x 20/30 = $724	$13,157 - 724 = $12,433

Therefore Sadak will bring in $9,009.