Prior to liquidating their partnership, Morgan and Chow had capital accounts of $32,000 and $60,000, respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of assets. These partnership assets were sold for $120,000. The partnership had $10,000 of liabilities. Morgan and Chow share income and losses equally. Determine the amount received by Morgan as a final distribution from liquidation of the partnership.
Answer:
Morgan’s equity prior to liquidation…………………………… $32,000
Realization of asset sales………………………………………… $120,000
Book value of assets
($32,000 + $60,000 + $10,000)……………………………… 102,000
Gain on liquidation……………………………………………… $ 18,000
Morgan’s share of gain (50% × $18,000)……………………… 9,000
Morgan’s cash distribution……………………………………… $41,000
