EX 12-22 Distribution of cash upon liquidation

Deacon, Raines, and Francis 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. Deacon and Raines advanced $300 and $450 of their own respective funds to pay for advertising and other expenses. After collecting for all sales and paying creditors, the partnership has $1,800 in cash.

a. How should the money be distributed?

b. Assuming that the partnership has only $600 instead of $1,800, do any of the three partners have a capital deficiency? If so, how much?

Answer:

a. Cash should be distributed as indicated in the following tabulation:  
 Deacon Raines Francis  Total  Capital invested................................ $ 300 $ 450 $ — $ 750 Net income........................................ +  350 + 350 + 350 +1,050* Capital balances and cash distribution.................................... $ 650 $ 800 $ 350 $1,800   *$1,800 – $300 – $450  
b. Francis has a capital deficiency of $50, as indicated in the following tabulation:  
Deacon Raines Francis  Total  Capital invested................................ $ 300 $ 450 $ — $ 750 Net loss............................................. – 50 – 50 – 50 – 150* Capital balances............................... $ 250 $ 400 $ 50 Dr. $ 600  *$600 – $750

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