Question

The partnership of Winn, Xie, Yang, and Zed has the following balance sheet:

Cash $42,000 Liabilities $67,000
Other assets 281,000 Winn, capital (50% of profits and losses) 72,000
Xie, capital (30%) 90,000
Yang, capital (10%) 52,000
Zed, capital (10%) 42,000

Zed is reasonably sure of obtaining at least $5,000 from the liquidation. Determine the amount for which the partnership must sell the other assets to ensure that Zed receives $5,000 from the liquidation. Liquidation expenses are expected to be $27,000.

Answer 1

Minimum amount for which the partnership must sell the other assets =$82,476

Step-by-step explanation

When partnership gets liquidate, residual funds are distributed among partners as per their capital ratio calculated before liquidation.

Hence, capital ratio of Zed in the partnership = Zed capital / Total capital

= 42,000 / (72,000+90000+52,000+42,000)

= 42/256 = 16.41%

If Zed to obtain minimum $5,000 from the liquidation, then the residual money (to be distributed in partners) which should be left = $5,000 / 16.41% = $30,476

Total realization from total assets would be = Residual distributable + Liquidations expenses + Liabilities = $30,476 + $27,000 + $67,000 = $124,476

The minimum amount to be realised out of Other Assets = Total realization required - Cash available before liquidation = $124,476 - $42,000 = $82,476