Question

The partnership of Anderson, Berry, Hammond, and Winwood is being liquidated. It currently holds cash of $20,000 but no other assets. Liabilities amount to $30,000. The capital balances are Anderson (40% of profits and losses) $ 20,000 Berry (30%) 12,000 Hammond (20%) (17,000 ) (deficit) Winwood (10%) (25,000 ) (deficit) a. If both Hammond and Winwood are personally insolvent, how much money must Berry contribute to this partnership? b-1. If only Winwood is personally insolvent, how much money must Hammond contribute? b-2. If only Winwood is personally insolvent, how will Hammond's contribution (funds) be disbursed? c. If only Hammond is personally insolvent, how much money should Anderson receive from the liquidation?

Answer 1

a. Contribution from Berry = $6,000

b-1. Contribution from Hammond = $22,556

b-2. Disbursement shall be:

Anderson = $8,889

Berry = $3,667

c. Amount to be received by Anderson on Liquidation = $11,500

Step-by-step explanation:

As for the provided information we have,

Capital balances

Anderson 40% $20,000

Berry 30% $12,000

Hammond 20% $17,000 (Deficit)

Winwood 10% $25,000 (Deficit)

a. Total deficit in this case will be = Share of Hammond + Winwood = $17,000 + $25,000 = $42,000

Berry's share =
`(30)/(30+40) * 42,000 = 18,000`

Since Berry's current balance = $12,000

Contribution required = $18,000 - $12,000 = $6,000

b-1. Total deficit of Winwood = $25,000

Hammond share =
`(20)/(20+30+40) * 25,000 = 5,556`

Hammond's current balance = - $17,000

Thus, contribution from Hammond = $5,556 + $17,000 = $22,556

b-2. Total deficit balance = $17,000 + $25,000 = $42,000

Total sufficient balance = $20,000 + $12,000 = $32,000

Net deficit balance = $42,000 - $32,000 = $10,000

Anderson share in Deficit of Winwood =
`25,000 * (40)/(40 + 30 +20) = 11,111`

Thus, net capital of Anderson = $20,000 - $11,111 = $8,889

Berry's share in deficit of Winwood =
`25,000 * (30)/(40+30+20) = 8,333`

Thus, net capital from Berry = $12,000 - $8,333 = $3,667

c. Total deficit from Hammond = $17,000

Anderson share =
`17,000 * (40)/(40+30+10) = 8,500`

Anderson's current balance = $20,000

Amount extra contributed by Anderson = $20,000 - $8,500 = $11,500

Thus, Anderson will receive $11,500 on liquidation.

Final Answer

a. Contribution from Berry = $6,000

b-1. Contribution from Hammond = $22,556

b-2. Disbursement shall be:

Anderson = $8,889

Berry = $3,667

c. Amount to be received by Anderson on Liquidation = $11,500