Question

The partnership of Winn, Xie, Yang, and Zed has the following balance sheet:

Cash	$	55,000	Liabilities	$	63,000
Other assets		318,000	Winn, capital (50% of profits and losses)		85,000
			Xie, capital (30%)		105,000
			Yang, capital (10%)		65,000
			Zed, capital (10%)		55,000

Zed is personally insolvent, and one of his creditors is considering suing the partnership for the $3,000 that is currently owed. The creditor realizes that this litigation could result in partnership liquidation and does not wish to force such an extreme action unless Zed is reasonably sure of obtaining at least $3,000 from the liquidation.

Determine the amount for which the partnership must sell the other assets to ensure that Zed receives $3,000 from the liquidation. Liquidation expenses are expected to be $40,000

Answer 1

ANSWER :

Zed is required to received $ 3,000 on liquidation.

Zed's Profit sharing ratio = 10%

It means the partnership is required to receive the following amount on liquidation (after selling all the assets and paying all the liabilities) to pay $ 3000 to ZED

= 3000*100/10

= $ 30,000

Amount for which the partnership must sell the assets = 30000+40000(Liquidation Exp.) + 63000(Liabilities) - 55000(Cash)

= 78,000