Question

Refer to the above information. If the facts are as in the previous question, except that $3,000 cash is to be withheld for potential liquidation costs, the respective partners would receive (to the nearest dollar):

A) Arch, $0, Bole, $11,333, Cusp, $5,667
B) Arch, $0, Bole, $1,000, Cusp, $16,000
C) Arch, $6,800, Bole, $6,800, Cusp, $3,400
D) Arch, $5,667, Bole, $5,667, Cusp, $5,666
E) Some other amounts

Answer 1

The respective partners would receive:

Arch, $5,667, Bole, $5,667, Cusp, $5,666.Thus the correct option is D.

Step-by-step explanation:

In the case where $3,000 cash is to be withheld for potential liquidation costs, the partners' respective shares are determined based on the remaining cash available for distribution. The total available cash for distribution is $17,000 ($20,000 - $3,000).

The distribution is then calculated based on the partners' profit and loss sharing ratios. Arch's share is calculated as 40% of $17,000, which is $6,800. Bole's share is also 40% of $17,000, which is $6,800. Cusp's share is 20% of $17,000, which is $3,400.

However, since $3,000 cash is to be withheld for potential liquidation costs, the final distribution to partners would be reduced by this amount. Therefore, Arch and Bole would receive $5,667 each, and Cusp would receive $5,666, rounding to the nearest dollar.

This calculation ensures that the partners receive their respective shares based on the adjusted available cash after considering the withheld amount for potential liquidation costs.Thus the correct option is D.