PE 12-6A Liquidating partnerships—deficiency

Prior to liquidating their partnership, Jolly and Haines had capital accounts of $80,000 and $45,000, respectively. The partnership assets were sold for $30,000. The partnership had no liabilities. Jolly and Haines share income and losses equally.

a. Determine the amount of Haines’ deficiency.
b. Determine the amount distributed to Jolly, assuming Haines is unable to satisfy the deficiency.

Answer:

a. Haines’ equity prior to liquidation................................   $ 45,000   Realization of asset sales............................................. $ 30,000  Book value of assets.....................................................  125,000*  Loss on liquidation........................................................ $ (95,000)  Haines’ share of loss (50% × $95,000).........................    (47,500)  Haines’ deficiency.........................................................   $ (2,500)   *$80,000 + $45,000  



b. $30,000.  ($80,000 – $47,500 share of loss – $2,500 Haines deficiency, also equals the amount realized from asset sales).

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