Question

1. The DE partnership is undergoing an installment liquidation. Partners D and E share income in a 3:2 ratio and have current capital balances of $60,000 and $80,000, respectively. No loans are receivable from or payable to partners. After outside creditors are paid, if $50,000 in cash becomes available for distribution to the partners, how is it distributed? A. $50,000 to D; $0 to E B. $6,000 to D; $44,000 to E C. $30,000 to D; $20,000 to E D. $12,000 to D; $38,000 to E

Answer 1

The correct answer is option (C):

$30,000 to D; $20,000 to E

Step-by-step explanation:

The key to solving this problem is to take not of the ratio at which income are shared which is 3:2 for partners D and E respectively. This means that out of every 5 parts (3 + 2), partner D gets 3 parts and the remaining 2 parts is for partner E.

Amount available to be shared = $50,000

Therefore amounts each partner gets is calculated thus:

Partner D:

3/5 of 50,000

= 3/5 × 50,000 = 0.6 × 50,000 = $30,000

Partner E:

2/5 of 50,000 = 0.4 × 50,000 = $20,000

hence partner D gets $30,000 while partner E gets $20,000