Question

The following balance sheet is for Arch, Bole & Cusp LLP, whose partners share net income and losses in a 2:2:1 ratio, respectively:

Assets
Cash $20,000
Other assets 180,000
Liabilities & Partners' Capital
Liabilities $50,000
Arch, Capital 37,000
Bole, Capital 65,000
Cusp, Capital 48,000
If Arch, Bole & Cusp LLP is liquidated by the realization of other assets in installments, the first realization of other assets with a carrying amount of $90,000 realizes $50,000, and all cash available after settlement with creditors is distributed to the partners, the respective partners would receive (to the nearest dollar):
A) Arch, $0, Bole, $13,333, Cusp, $6,667
B) Arch, $0, Bole, $3,000, Cusp, $17,000
C) Arch, $8,000, Bole, $8 000, Cusp, $4,000
D) Arch, $6,667, Bole, $6,667, Cusp, $6,666
E) Some other amounts

Answer 1

Arch would receive $8,000, Bole would receive $8,000, and Cusp would receive $4,000 in a liquidation scenario based on their respective capital accounts and the 2:2:1 ratio in which they share net income and losses.

Step-by-step explanation:

To calculate the respective amounts that each partner would receive in a liquidation scenario, we need to consider the partners' capital accounts and the ratio in which they share net income and losses. In this case, the partners share net income and losses in a 2:2:1 ratio, respectively. Based on the given balance sheet, Arch's capital account is $37,000, Bole's capital account is $65,000, and Cusp's capital account is $48,000.

The first realization of other assets with a carrying amount of $90,000 realizes $50,000. To distribute the cash available after settlement with creditors to the partners, we can calculate the proportionate share of each partner based on their capital accounts:

1. Arch: (37,000 / (37,000 + 65,000 + 48,000)) * 50,000 = $8,000
2. Bole: (65,000 / (37,000 + 65,000 + 48,000)) * 50,000 = $8,000
3. Cusp: (48,000 / (37,000 + 65,000 + 48,000)) * 50,000 = $4,000

Therefore, the respective partners would receive Arch: $8,000, Bole: $8,000, and Cusp: $4,000 (to the nearest dollar).