Question

The partnership of Hendrick, Mitchum, and Redding has the following account balances:

Cash	$	52,000			Liabilities	$	38,000
Noncash assets		151,000			Hendrick, capital		124,000
					Mitchum, capital		86,000
					Redding, capital		(45,000	)

This partnership is being liquidated. Hendrick and Mitchum are each entitled to 30 percent of all profits and losses with the remaining 40 percent going to Redding.

1. What is the maximum amount that Redding might have to contribute to this partnership because of the deficit capital balance?

2. How should the $14,000 cash that is presently available in excess of liabilities be distributed?

3. If the noncash assets are sold for a total of $66,000, what is the minimum amount of cash that Hendrick could receive?

Answer 1

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Answer 2

1	Maximum amount	=	$       1,05,400
	Redding, Capital
	Deficit balance	=	$           45,000
	Maximum loss shares of Redding on Non cash assets ($151000 X 40%)	=	$           60,400
	Maximum amount contributed by Redding	=	$       1,05,400
2	Distributed:
	Hendrick	=	$           14,000
	Mitchum	=	0
	Redding	=	0
	Total Maximum loss	=	Non cash assets + Redding Deficit balance
		=	$151000 + $45000
		=	$       1,96,000
			Hendrick	Mitchum
	Capital Balance	=	$       1,24,000	$ 86,000
	Share of total maximum loss (3:3)	=	$         -98,000	$-98,000
			$           26,000	$-12,000
	Therefore, $14000 shall be given to Hendrick as only he has the positive balance
3	Minimum amount received by Hendrick	=	$           59,000
	Workings:
	Non cash assets	=	$       1,51,000
	Cash received	=	$         -66,000
	Net loss	=	$           85,000
			Hendrick	Mitchum	Redding
	Capital Balance	=	$       1,24,000	$ 86,000	$-45,000
	Share of Net Loss (3:3:4)	=	$         -25,500	$-25,500	$-34,000
	Total	=	$           98,500	$ 60,500	$-79,000
	Further deficit of Redding distributed to other partners (3:3)	=	$         -39,500	$-39,500	-
	Balance	=	$           59,000	$ 21,000	-
	Therefore, amount received by Hendrick is $59000 and by Mitchum is $21000