Question

Assume that a partnership had assets with a book value of $240,000 and a market value of $195,000, outside liabilities of $70,000, loans payable to partner Able of $20,000, and capital balances for partners Able, Baker, and Chapman of $70,000, $30,000, and $50,000. How much would Able receive upon liquidation of the partnership assuming profits and losses are allocated equally?
A. $70,000
B. $90,000
C. $75,000
D. $55,000

Answer 1

Answer:

Correct answer is D $55,000

Explanation:

During the liquidation process of the partnership, the asset will be sold, pay all liabilities and distribute the remaining funds to partners. Hence, the value of asset that we are going to use is the market value. First preference on distribution is the outside creditors, followed by the partner creditors and then divide the remaining amount to the partners based on the agreed allocation.

1. $195,000 - $70,000 (outside creditor) = $125,000

2. $125,000 - $20,000 (Able) = $105,000

3. $105,000 / 3 (equally) = $35,000

Therefore, the total amount that Able received upon liquidation is, $20,000 (receivable from partnership) + $35,000 (share on remaining funds) = $55,000