Impact on a partner’s capital account as a result of acquiring an additional interest in the partnership. Freeman has been a partner in a commercial construction company for over 25 years and has finally decided to dispose of their interest in the partnership. Of the other two partners, Thierfelder and Pape, only Pape has expressed an interest in acquiring Freeman’s interest. However, neither of the remaining partners want Freeman to sell their interest to an outside party. The partners have always allocated profits and losses based on their proportionate average capital balances. Therefore, Thierfelder and Pape are both interested in what impact a sale by Freeman would have on their capital balance and in turn their interest in profits and losses.
Assume that prior to a sale by Freeman, the capital balances are $80,000, $40,000, and $40,000 for Freeman, Thierfelder, and Pape, respectively, and the recorded net assets of the partnership have a current value of $200,000. Pape has sought out your advice and has posed the following questions:
Already registered? Login
Not Account? Sign up
Enter your email address to reset your password
Back to Login? Click here