Question

Turner, Roth, and Lowe are partners who share income and loss in a 2:3:5 ratio. After lengthy disagreements among the partners and several unprofitable periods, the partners decide to liquidate the partnership. Immediately before liquidation, the partnership balance sheet shows total assets, $150,000; total liabilities, $98,000; Turner, Capital, $4,500; Roth, Capital, $15,000; and Lowe, Capital, $32,500. The cash proceeds from selling the assets were sufficient to repay all but $38,000 to the creditors.

Required:
a. Calculate the loss from selling the assets.
b. Allocate the loss from part a to the partners.
c. Determine how much, if any, each partner should contribute to the partnership to cover any remaining capital deficiency.

Answer 1

Turner, Roth, and Lowe Partnership

a. The Loss from selling the assets = $90,000

b. Allocation of the loss to the partners:

Turner = $18,000 (2/10 * $90,000)

Roth = $27,000 (3/10 * $90,000)

Lowe = $45,000 (5/10 * $90,000)

c. Capital contribution by partners to cover capital deficiency:

Turner Roth Lowe Total

Capital contribution $13,500 $12,000 $12,500 $38,000

Step-by-step explanation:

a) Data and Calculations:

Total assets, $150,000

Total liabilities, $98,000

Turner, Capital, $4,500

Roth, Capital, $15,000

Lowe, Capital, $32,500

Liabilities + Equity $150,000

Cash proceeds from sale of assets = $60,000 ($98,000 - $38,000)

Loss from selling the assets = $90,000 ($150,000 - $60,000)

Loss sharing ratio = 2:3:5

Loss sharing:

Turner = $18,000 (2/10 * $90,000)

Roth = $27,000 (3/10 * $90,000)

Lowe = $45,000 (5/10 * $90,000)

Capital Deficiency =

Turner Roth Lowe

Capital accounts $4,500 $15,000 $32,500

Loss sharing (18,000) (27,000) (45,000)

Capital Deficiency ($13,500) ($12,000) ($12,500)

Capital contribution $13,500 $12,000 $12,500

b) After contributing to the capital deficiencies to the tune of $38,000, the remaining liabilities will be settled.