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?

Question

Quizplus · Accepted Answer

Since Gage is unable to pay the deficiency, he will not receive any cash upon liquidation. The remaining cash will be distributed among Henry and Luther in proportion to their ending capital account balances, which are $45,000 and $37,000 respectively. Therefore, each of them will receive $38,500 ($77,000/2) and Gage will receive $0.

Henry, Luther, and Gage Are Dissolving Their Partnership