Problem 15-17 (LO 15-5)
The following condensed balance sheet is for the partnership of Miller, Tyson, and Watson, who share profits and losses in the ratio of 6:2:2, respectively:
Cash $ 41,000 Liabilities $ 69,000
Other assets 141,000 Miller, capital 51,000
Total assets $ 182,000 Tyson, capital 51,000
Watson, capital 11,000
Total liabilities and capital $ 182,000
For how much money must the other assets be sold so that each partner receives some amount of cash in a liquidation?
Solution:-
Watson is the partner most vulnerable to a loss. A loss of only $55,000 would completely eliminate Watson's capital balance:
Miller $51,000/60%=$ 85,000 loss to eliminate capital
Tyson $51,000/20%=$ 2,55,000 loss to eliminate capital
Watson $11,000/20%=$ 55,000 loss to eliminate capital
Thus, if the loss on disposal is less than $55,000, all partners will retain positive capital balances and receive some cash in liquidation. Because of this, since "other assets" are $141,000, they must be sold for any amount over $86,000 for all partners to get cash.
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