Twelve years ago, Adams, Boyd, and Chambers formed a partnership

Twelve years ago, Adams, Boyd, and Chambers formed a partnership manufacturing small circuit boards. Unfortunately, foreign competition, a softening economy, and management errors have led the partners to realize that the company's business cannot be sustained and that the partnership must be liquidated. A condensed balance sheet is as follows:
Twelve years ago, Adams, Boyd, and Chambers formed a partnership

The current value of personal assets and liabilities of the partners, excluding those related to the partnership, are as follows:

Twelve years ago, Adams, Boyd, and Chambers formed a partnership

Boyd is extremely concerned that after liquidation of the partnership they would still continue to be personally insolvent. This would be devastating to Boyd, and they have come to you with their concerns.
Prepare a response to each of Boyd's independent questions noting that profits and losses are allocated 40%, 20%, and 20% to Adams, Boyd, and Chambers, respectively.
1. If assets with a book value of $180,000 were sold for $200,000 and the partners agreed to maintain a minimum cash balance of $5,000, would any of the available cash be distributed to Boyd?
2. If all of the noncash assets were sold for net proceeds of $280,000 and all cash was distributed, would any of the available cash be distributed to Boyd?
3. Assume that all of the noncash assets were sold for net proceeds of $150,000 and all cash was distributed. If Adams contributed the necessary assets to the partnership to liquidate unsatisfied outside creditors, how much would Boyd be liable to Adams for?
4. How much would all of the noncash assets have to be sold for so that after distributing all available cash Boyd could liquidate their personal liabilities?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Liquidation
Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due....
Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...

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