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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Distribution of cash upon liquidation

Bray, Lincoln, and Mapes arranged to import and .sell orchid corsages for a university dance. They agreed to share equally the net income or net loss of the venture. Bray and Lincoln advanced $225 and $500 of their own respective funds to pay for advertising and other expenses. After collecting for all sales and paying creditors, the partnership has $1,500 in cash.

  1. a. How much net income was earned from the venture?
  2. b. How should the $1,500 be distributed?
  3. c. Assuming that the partnership has only $300 instead of $1,500, do any of the three partners have a capital deficiency? If so, how much?

a.

To determine

Partnership

It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.

Liquidating Partnership

The winding up of process of partnership is called liquidation of partnership. At the time of liquidation of partnership realization of account is prepared.

 The net income earned from the venture.

Explanation

The calculation of net income earned from the venture is as follows:

(Netincomeearned)=(Remaining cashafter payment of liabilities - 

b.

To determine

 The division of $1,500 among the partners.

c.

To determine

 If the partnership has $300 instead of $1,500, then will any partner have a capital deficiency and by how much?

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