Question

Ames and Barton are partners who share income in the ratio of 1:2 and have capital balances of $40,000 and $70,000, respectively, at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $80,000. What amount of loss on realization should be allocated to Barton? a.$80,000 b.$10,000 c.$20,000 d.$30,000

Answer 1

Answer:

Option (c) $20,000

Explanation:

Data provided in the question:

Total capital balance = $40,000 + $70,000

= $110,000

Total liabilities after selling of assets = $80,000

Therefore,

Total loss realization = Total capital balance - Total liabilities

= $110,000 - $80,000

= $30,000

Thus,

Loss realization allocated to Barton = $(\frac{2}{1+2})\times\ 30,000$

= $20,000

Hence,

Option (c) $20,000