[Lily Juell]

The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share

profits and losses in the ratio of 60:40, respectively:

Cash $ 45,000

Other assets 625,000

Beda, loan 30,000

$ 700,000

Accounts payable $ 120,000

Alfa, capital 348,000

Beda, capital 232,000

$ 700,000

Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the other assets

are sold for $500,000, what amount of the available cash should be distributed to Alfa?

a. $255,000

b. $273,000

c. $327,000

d. $348,000

The solution is $273,000. Can anyone explain this answer better?

[LKD CPA]

Lily Juell,

First thing to do is make any necessary adjustments to the capital balances:

Beginning Alfa 348

Beginning Beda 232

Adj. for loan Alfa 0

Adj. for loan Beda (30)

Ending capital Alfa 348

Ending capital Beda 202 (232-30)

Now you need to calculate the gain or loss. Because the other assets were carried at 625 and sold 500 there is a 125 loss that needs to be distributed at the 60:40 split.

Alfa 125 x .6 = 75

Beda 125 x .4 = 50

Now you have to deduct the loss from the amount of capital,

Alfa 348 – 75 = 273

FAR: 74, 83
REG: 76
BEC: 77
AUD: 89

[Author]

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