Question

Adam and Bard agreed to liquidate their partnership. Having been asked to assist them in this process, you prepare the following balance sheet for the date of the beginning of the liquidation. The loss-sharing percentages are in parentheses next to the capital account balances.
Cash .............. $ 40,000
Loan Receivable from Adam.... 10,000
Other Assets.......... 200,000
Total .............. $250,000
Accounts Payable ....... $ 30,000
Loan Payable to Bard ...... 100,000
Adam, Capital (50%) ....... 80,000
Bard, Capital (50%) ...... 40,000
Total ............ $250,000
Bard is demanding that the loan from him be paid before any cash is distributed to Adam. Adam believes the available cash should be paid to him until his capital account is reduced to $40,000, the same as Bard’s. Adam will then pay the loan receivable to the partnership with the cash received. You have been asked to reconcile the argument.

Required
What would you advise in this case?



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  • CreatedMay 23, 2014
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