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Alpha and Beta are partners who share income in the ratio of 1:2 and have capital balances of $34,200 and $88,500, 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 $80,700. What amount of loss on realization should be allocated to Alpha

Sagot :

Anthougoidn

Answer:

Alpha and Beta

The amount of loss on realization that should be allocated to Alpha is:

$14,000.

Explanation:

a) Data and Calculations:

                                                Alpha    Beta         Total

Sharing ratio =                           1          :   2

Capital balances               $34,200   $88,500   $122,700

Cash balance =                                                     $80,700

Loss on realization = $42,000 ($122,700 - 80,700)

Loss sharing:

Alpha = $42,000 * 1/3 =  ($14,000)

Beta = $42,000 * 2/3 =                    ($28,000)

Cash refund                    $20,200   $60,500    ($80,700)

b) After sharing the loss (reduction in their capital balances against the available cash) in their profit and loss sharing ratios, their capital balances will be reduced by their respective amounts of loss.  Therefore, the cash each partner is entitled to will become equal to the cash available, as depicted above.

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