USA Simple Partnership Accounting Question


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Information:
Assets
Cash 9000
Accounts
Receivable 22000
Inventory 73000
Total $104,000

Liabilities and Owner's Equity
Accounts payable 21000
Harriet, Capital 23000
Mike, Capital 8000
Elly, Capital 52000
Total: $104,000

Information: Income ratios are 2:4:4 for Harriet, Mike, and Elly, respectively.

Question: Assume that as part of liquidation proceedings, Creekville sells its noncash assets for $60,000. As a result, one of the partners has a capital deficiency which that partner decides not to repay. The amount of cash that would ultimately be distributed to Elly would be ____.

Okay, I know the answer is $34,000 and I know how they got the answer, I just don't understand a small part.
Long story short, it turns out that Mike has a deficit of $6,000 that he is unwilling to pay.

Now this is the part that I don't get: Elly's part to pay in this is $6,000 * 4/6 = $4000.
However, That would make Harriet's part to pay also $4,000.
The deficit is only $6,000. I would think that you would divide the loss equally between both partners since they both have the same income ratio.
How does this work?

Thanks,
Sarah
 
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Hello Sarah,

I did not work through the problem in its entirety, but focusing on Mike's $6,000 deficit, this amount would be absorbed by Harriet and Elly, who have a 2:4 ratios (now that Mike is out of the picture). That means that Harriet will absorb 2/6 ($2,000) of the deficit, while Elly will absorb 4/6 ($4,000). I believe you were on the right track--possibly just misreading the relevant ratio for Harriet? :)

Harriet Make Elly
2:4:4

Hope this clarifies things!
 

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