Question

A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All liabilities have been paid. The partners capital accounts are as follows Harry $40,000, Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2. If the building is sold for $50,000, how much cash will Harry receive in the final settlement?

Answer 1

Answer:

$28,000

Explanation:

we need to calculate the loss on the sale of the building:

sales price - basis = $50,000 - $80,000 = ($30,000)

• Harry = ($30,000) x 40% = ($12,000)
• Landers = ($30,000) x 40% = ($12,000)
• Waters = ($30,000) x 20% = ($6,000)
• total loss = ($30,000)

the partners basis:

• Harry = $40,000 - $12,000 = $28,000
• Landers = $30,000 - $12,000 = $18,000
• Waters = $15,000 - $6,000 = $9,000
• total = $55,000

Since the partners' basis ($55,000) equal the total available cash ($5,000 cash and $50,000 proceeds from sale = $55,000), then each partner will receive an amount equal to their basis.

• Harry = $28,000
• Landers = $18,000
• Waters = $9,000