Maha, Alice, Sana and Kathy formed a partnership. At the time of the partnership's formation, Maha's capital contribution was $80,000, Alice's was $16,000, Sana's was $40,000, and Kathy's was $24,000. Later, Sana made a $25,000 loan and Kathy made a $15,000 loan to the partnership when it needed working capital. The partnership agreement provided that profits/losses were to be shared based on the partners' capital contribution. The partnership was dissolved by Alice's death. At the end of the dissolution and the winding up of the partnership, the partnership's assets were $400,000, and partnership's debts to all creditors were $100,000. You do not have to use the IRAC method.

Discuss fully how the assets should be distributed.  

 Using the same information, except that the partnership agreement provided that profit/losses are to be shared equally among the partners, how much would Sana receive in total, including the component parts? 

Answer rating: 100% (QA)

Distribution Based on Capital Contribution Step 1 Profit Calculation First calculate the partnerships net assets by subtracting total debts from total assets 400000 assets 100000 debts 300000 net assets Since profitslosses are shared based on capital contribution we need to convert Sanas and Kathys loans into capital Loans do not automatically share in profits unless explicitly stated in the agreement Add the loans to their initial capital contributions Sana 40000 original 25000 loan 65000 Kathy 24000 original 15000 loan 39000 Calculate the total capital of all partners Maha 80000 Alice 16000 Alices share of profitslosses is irrelevant since shes deceased Sana 65000 Kathy 39000 Calculate each partners percentage share of the profit based on capital contribution Maha 80000 200000 100 40 Sana 65000 200000 100 325 Kathy 39000 200000 100 195 Step 2 Distribution of Net Assets Using the percentage shares distribute the net assets to each partner Maha 300000 40 120000 Sana 300000 325 97500 Kathy 300000 195 58500 Therefore under the original partnership ... View the full answer