PE 12-6A Liquidating partnerships—deficiency

Prior to liquidating their partnership, Wakefield and Barns had capital accounts of $105,000 and $55,000, respectively. The partnership assets were sold for $40,000. The partnership had no liabilities. Wakefield and Barns share income and losses equally.

a. Determine the amount of Barns’ deficiency.
b. Determine the amount distributed to Wakefield, assuming Barns is unable to satisfy the deficiency.


Answer:

a. Barns’ equity prior to liquidation……………… $55,000
Realization of asset sales………………………… $ 40,000
Book value of assets*…………………………… 160,000
Loss on liquidation……………………………… $(120,000)
Barns’ share of loss (50% × –$120,000)……… (60,000)
Barns’ deficiency………………………………… $ (5,000)
* $105,000 + $55,000
b. $40,000. ($105,000 – $60,000 share of loss – $5,000 Barns’ deficiency;
also equals the amount realized from asset sales)