EX 12-19 Distribution of cash upon liquidation

Manley and Singh are partners, sharing gains and losses equally. They decide to terminate their partnership. Prior to realization, their capital balances are $20,000 and $15,000, respectively. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $19,000.

a. What is the amount of a gain or loss on realization?
b. How should the gain or loss be divided between Manley and Singh?
c. How should the cash be divided between Manley and Singh?


Answer:

a. Cash balance………………………………………………… $19,000
Sum of capital accounts………………………………… 35,000
Loss on realization………………………………………… $16,000
Manley Singh
Capital balances before realization…………………… $20,000 $15,000
b. Division of loss on realization*…………………………… 8,000 8,000
Balances…………………………………………………… $12,000 $ 7,000
c. Cash distributed to partners……………………………… 12,000 7,000
Final balances……………………………………………… $ 0 $ 0
* $16,000 ÷ 2