Question

Charles, Carissa, and Clay are partners, sharing income 1:2:3. After selling all of the assets for cash, dividing losses on realization, and paying liabilities, the balances in the capital accounts are as follows: Charles, $50,000 Cr.; Carissa, $40,000 Dr.; and Clay, $20,000 Cr. How much cash is available for distribution to the partners?

a. $20,000
b. $110,000
c. $30,000
d. $40,000

Answer 1

Option (c) is correct.

Step-by-step explanation:

Given that,

Income sharing ratio = 1:2:3

Balances in the capital accounts:

Charles has a credit balance = $50,000

Carissa has a debit balance = $40,000

Clay has a credit balance = $20,000

All the credit balances of the capital accounts are added to the cash available and all the debit balances are deducted while calculating the cash available for the distribution.

Cash is available for distribution to the partners:

= Charles (Credit balance) - Carissa (Debit balance) + Clay (Credit balance)

= $50,000 - $40,000 + $20,000

= $30,000