Fresco and Garcia form a partnership-HVAC Pros. Garcia's capital contribution is $10,000, and Fresco's is $15,000. The partnership agreement provides that profits are to be shared, with 40 percent for Garcia and 60 percent for Fresco. Later, Garcia
makes a $10,000 loan to the partnership when it needs working capital. When the partnership is dissolved, its assets are $50,000, and its debts are $8,000. How should the assets be distributed?
On the dissolution and winding up of a partnership, the order of liability payment of the assets is as follows: (a) debts owed to partnership creditors, including partners; and (b) capital contributions of partners and profits as provided or, in the absence of an agreement, equally [UPA 807].
In this question, the partnership's creditors would be paid $8,000 first, leaving a balance of $42,000 from the $50,000. Next, Garcia would be paid $10,000 for the loan, or advance, leaving $32,000. From this amount, Garcia would receive $10,000 and Fresco $15,000 as payment for their capital contributions, leaving a balance of $7,000. The $7,000 would be split as profits, with 40 percent going to Garcia ($2,800 ) and 60 percent to Fresco ($4,200).
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