Question

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 $ 62,000 Liabilities $ 61,000 Other assets 162,000 Miller, capital 72,000 Tyson, capital 72,000 Watson, capital 19,000 Total assets $ 224,000 Total liabilities and capital $ 224,000 For how much money must the other assets be sold so that each partner receives some amount of cash in a liquidation?

Answer 1

Answer:

$67,000

Explanation:

Miller$72,000/60%=$ 120,000 loss to eliminate capital

Tyson$72,000/20%=$ 360,000 loss to eliminate capital

Watson$19,000/20%=$ 95,000 loss to eliminate capital

Watson is the partner most vulnerable to a loss of $95,000 which will inturn eliminate Watson's capital balance

Hence:

$162,000-$95,000

=$67,000

Therefore if the loss on disposal is less than $95,000, all partners will retain positive capital balances and receive some cash in liquidation reason been that other assets which is $162,000, must be sold for any amount over $67,000 for all partners to get cash.