Question

Antonio and Barbara are partners who share income in the ratio of 1:2 and have capital balances of $40,000 and $70,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $80,000. What amount of loss on realization should be allocated to Barbara?
a. $80,000
b. $10,000
c. $20,000
d. $30,000

Answer 1

Answer: c. $20,000

Explanation:

The Loss on Realization is monies accrued after assets have been sold off at less than their original value and in Calculating it, the following formula is used,

Loss on realization = Total Capital Balances after payment of liabilities minus - balance

Slotting in the figures therefore we have,

Loss on realization = $40,000 + $70,000 - $80,000

= $30,000 was the total loss on Realization

Seeing as Antonio and Barbara are partners who share income in the ratio of 1:2 we allocate to Barbara as follows,

Barbara = $30,000 * 2/(1+2)

= $20,000

Therefore option C is correct.