Question

Dowd, Elgar, Frost, and Grant formed a general partnership. Their written partnership agreement provided that the profits would be divided so that Dowd would receive 40%; Edgar, 30%; Frost, 20%; and Grant, 10%. There was no provision for allocating losses. At the end of its first year, the partnership had losses of $200,000. Before allocating losses, the partners' capital account balances were: Dowd, $120,000; Elgar, $100,000; Frost, $75,000; and Grant, $11,000. Grant refuses to make any further contributions to the partnership. Ignore the effects of federal partnership tax law.After losses were allocated to the partners' capital accounts and all liabilities were paid, the partnership's sole asset was $106,000 in cash. How much would Elgar receive on dissolution of the partnership?a. $37,000b. $40,000c. $47,500d. $50,000

Answer 1

The answer is: Edgar will receive $37,000

Step-by-step explanation:

• Dowd's share of the company's losses is $80,000
• Edgar's share of the company's losses is $60,000
• Frost's share of the company's losses is $40,000
• Grant's share of the company's losses is $20,000

But since Grant is not willing to give more money to the partnership to cover his losses, the $9,000 difference must be divided by the remaining three partners. So they will divide Grant's losses as follows:

• Dowd's share of the Grant's losses is $3,600

• Edgar's share of the Grant's losses is $2,700

• Frost's share of the Grant's losses is $1,800

Then you add up all the losses the three remaining partners had:

• Dowd' total losses $83,600
• Edgar's total losses $62,700
• Frost's total losses $21,800

So when the partnership was dissolved, Edgar should have received $100,000 (capital) - $62,700 (total losses) = $37,200

I selected answer A since they probably rounded down Edgar's share to $37,000 (nearest possible choice).