Question

Henry, Luther, and Gage are dissolving their partnership. Their partnership agreement allocates each partner 1/3 of all income and losses. The current period's ending capital account balances are Henry, $45,000; Luther, $37,000; and Gage, $(5,000). After all assets are sold and liabilities are paid, there is $77,000 in cash to be distributed. Gage is unable to pay the deficiency.

What amount of cash will Gage receive upon liquidation?

a.$25,667.

b.$20,667.

c.$30,667.

d.$0.

Answer 1

The correct answer is option (D).

Step-by-step explanation:

According to the scenario, the given data are as follows:

Henry capital = $45,000

Luther capital = $37,000

Gage capital = $(5,000)

Cash available = $77,000

Deficiency to be paid = 5000

As Gage is unable to pay the deficiency, the deficiency is paid by Henry and Luther

So, Henry capital after paying deficiency = $45,000 - $2,500 = $42,500

and Luther capital after paying deficiency = $37,000 - $2,500 = $34,500

Hence, cash allocation = Henry = $ 42,500

Luther = $ 34,500

Gage = $ 0

Total = $ 77,000

Therefore, Gage will receive $0 upon liquidation.