The Allen, Bevell, and Carter partnership began the process of liquidation with
the following balance sheet:
Cash
Noncash assets
$
25,000
500,000
Total
$
525,000
Liabilities
Allen, capital
Bevell, capital
Carter, capital
Total
$
$
175,000
90,000
100,000
160,000
525,000
Allen, Bevell, and Carter share profits and losses in a ratio of 3:2:5. Liquidation
expenses are expected to be $14,000.
Assuming that, after the payment of liquidation expenses in the amount of
$14,000 was made and the noncash assets were sold, if Carter has a deficit of
$10,000, for what amount would the noncash assets have been sold?
Multiple Choice

$174,000.
Correct

$188,000.

$160,000.

$146,000.

Explanation
$185,000.
The resulting deficit of $10,000 is after depleting Carter’s capital account balance of $160,000. Thus, a
total of $170,000 was allocated to reduce Carter’s capital account balance. Since Carter was allocated
one-half of the total reduction, the total allocation of expenses and losses was $340,000 of which
$14,000 was for liquidation expenses, leaving a total loss on the sale of non-cash assets of $326,000. The
non-cash assets were sold for $326,000 less than book value which means the non-cash assets were sold
for $174,000 ($500,000 − $326,000). The result is provided as: [Non-Cash Assets BV $500,000 − Cash
Received $174,000] + Liquidation Expenses $14,000 = Loss on Non-Cash Assets ($340,000) × 50% =
Loss to Carter ($170,000) − Capital Account Balance $160,000 = Carter’s Deficit $10,000.