Question

X, Y, and Z have capital balances of $90,000, $60,000, and $30,000, respectively. Profits are allocated 35% to X, 35% to Y, and 30% to Z. The partners have decided to dissolve and liquidate the partnership. After paying all creditors, the amount available for distribution is $60,000. X, Y, and Z are all personally solvent. Under the circumstances, Z will:

a. receive $18,000b. receive $30,000c. personally have to contribute an additional $6,000d. personally have to contribute an additional $36,000

Answer 1

C) personally have to contribute an additional $6,000

Step-by-step explanation:

X's capital balance = $90,000.

Y's capital balance = $60,000.

Z's capital balance = $30,000.

The partnership lost $120,000 which must be covered proportionally by the partners:

X has to cover 35% of the losses = $60,000

Y has to cover 35% of the losses = $40,000

Z has to cover 30% of the losses = $36,000

Since Z's capital balance is only $30,000, he owes the partnership $6,000 because his proportional losses were larger than his capital balance = $36,000 - $30,000 = $6,000