Liquidating Partnerships Prior to liquidating their partners

Liquidating Partnerships Prior to liquidating their partnership, Ellis and Gentry had capital accounts of $25,000 and $39,000, respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of assets. These partnership assets were sold for $72,000. The partnership had $3,000 of liabilities. Ellis and Gentry share income and losses equally.

Determine the amount received by Ellis as a final distribution from liquidation of the partnership.

Solution

Solution:

Porter’s equity prior to liquidation $ 25,000

Sale of assets $ 72,000

Carrying value of assets ($25,000 +$39,000 + $3,000) 67,000

Gain on liquidation $ 5,000

Ellis’s share of gain (50%x $5,000) 2,500

Ellis’s cash distribution $ 27,500