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The partnership of Winn, Xie, Yang, and Zed has the following balance sheet:
| Cash | $ | 43,000 | Liabilities | $ | 66,000 |
| Other assets | 282,000 | Winn, capital (50% of profits and losses) | 73,000 | ||
| Xie, capital (30%) | 90,000 | ||||
| Yang, capital (10%) | 53,000 | ||||
| Zed, capital (10%) | 43,000 | ||||
Zed is personally insolvent, and one of his creditors is considering suing the partnership for the $18,000 that is currently owed. The creditor realizes that this litigation could result in partnership liquidation and does not wish to force such an extreme action unless Zed is reasonably sure of obtaining at least $18,000 from the liquidation.
Determine the amount for which the partnership must sell the other assets to ensure that Zed receives $18,000 from the liquidation? Liquidation expenses are expected to be $28,000. (Do not round intermediate calculations.)
Minimum Amount: ??? (Please show work)
Expert Answer
In case of liquidation of the partnership, the partners get the residual money in the ratio of their final capital ratio before liquidation. So,
Capital ratio of Zed in the partnership = Zed capital/Total capital = 43000 / (73000+90000+53000+43000) = 43/259
If Zed to get mininum $18000, then the residual (distributable in partners) should left = 18000 / (43/259) = $108418
Total realisation of the total assets would be = partners distributable + Liq. expenses + liabilities = 108418+28000+66000 = $202418
The minimum amount to be realised out of the Other Assets = Total realisation required – Cash available before liquidation = $202418 – $43000 = $159418
