Question

Liquidating Partnerships—Deficiency Prior to liquidating their partnership, Wakefield and Barns had capital accounts of $105,000 and $55,000, respectively. The partnership assets were sold for $40,000. The partnership had no liabilities. Wakefield and Barns share income and losses equally. a. Determine the amount of Barns' deficiency. $fill in the blank 1 b. Determine the amount distributed to Wakefield, assuming Barns is unable to satisfy the deficiency. $fill in the blank 2

Answer 1

Answer:

Liquidating Partnerships

a. The amount of Barn's deficiency is:

= $5,000.

b. The amount distributed to Wakefield, assuming that Barns is unable to satisfy the deficiency is:

= $40,000.

Explanation:

a) Data and Calculations:

Sharing of profits and losses = 1:1

                                           Wakefield     Barns      Total

Capital account balances $105,000   $55,000 $160,000

Proceeds from partnership assets =                      40,000

Loss from sale of partnership assets =                120,000

Sharing of loss equally      -60,000     -60,000  -120,000

Capital account balances $45,000     ($5,000)

Distribution to Wakefield   40,000

Barn's capital account deficiency        $5,000          

b) When Barn is not able to satisfy his capital deficiency after the equal sharing of the loss from the sale of the partnership assets, the amount distributed to Wakefield is reduced by Barn's deficiency.  Therefore, Wakefield will be paid cash of $40,000 since there are no liabilities.