Partners Eric and Jeremy each have $3,000 capital balances and share income and losses in a 2:1 ratio for Eric and Jeremy,respectively.Cash equals $1,000,noncash assets are $10,000,and liabilities are $5,000.If all the noncash assets are sold for $4,000,and each partner is personally insolvent,Jeremy eventually will receive cash of:
A)$0.
B)$1,000.
C)$1,500.
D)$2,000.

Question

Quizplus · Accepted Answer

After selling noncash assets for $4,000, total cash is $5,000. Liabilities are $5,000, so all cash is used to pay liabilities. No cash remains for distribution to partners, and since both partners are insolvent, Jeremy receives $0.

Partners Eric and Jeremy Each Have $3,000 Capital Balances and Share