Manley and Singh are partners, sharing gains and losses equally. They decide to terminate their partnership. Prior to realization, their capital balances

Manley and Singh are partners, sharing gains and losses equally. They decide to terminate their partnership. Prior to realization, their capital balances are $20,000 and $15,000, respectively. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $19,000.

a. What is the amount of a gain or loss on realization?
b. How should the gain or loss be divided between Manley and Singh?
c. How should the cash be divided between Manley and Singh?


Answer:














a. Cash balance………………………………………………… $19,000
Sum of capital accounts………………………………… 35,000
Loss on realization………………………………………… $16,000
Manley Singh
Capital balances before realization…………………… $20,000 $15,000
b. Division of loss on realization*…………………………… 8,000 8,000
Balances…………………………………………………… $12,000 $ 7,000
c. Cash distributed to partners……………………………… 12,000 7,000
Final balances……………………………………………… $ 0 $ 0
* $16,000 ÷ 2