Question

42. Partners Dalton, Edwards, and Finley have capital balances of $40,000, 90,000 and $30,000, respectively, immediately prior to liquidation. Total remaining assets have a book value of $160,000, the liabilities having been paid. Among these remaining assets is a machine with a fair value of $35,000. The partners split profits and losses equally. Edwards covets the machine and is willing to accept it for $35,000 in lieu of cash. The other partners have no designs on specific assets, only cash in liquidation. How much cash, in addition to the machine, would be first distributed to Edwards, before any of the other partners received anything?
A. $15,000
B. $50,000
C. $166,667
D. $300,000

can someone help me to how to get this answer A? need to show the work

Answer 1

The answer is $15,000.

Calculations and explanations:

	Capital balance	P&L percentage	*	Maximum absorbable loss	Rank
Dalton	40,000	0.3333		120,000	2
Edwards	90,000	0.3333		270,000	1
Finley	30,000	0.3333		90,000	3

Edwards would receive 50,000 before the other partners. This can be shown below:

270,000- 120,000 = 150,000

And 150,000*1/3 = 50,000.

So 50,000 - 35,000 = $15,000

Hence Edwards will be distributed $15,000 as cash before Dalton and Finley receive anything.