FUND.ACCT.PRIN -ONLINE ONLY  >I<
FUND.ACCT.PRIN -ONLINE ONLY >I<
22nd Edition
ISBN: 9780077632878
Author: Wild
Publisher: MCG
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Question
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Chapter 12, Problem 5BPSB
To determine

Concept Introduction:

Liquidation of Partnership: Liquidation of partnership is the process of selling all the partnership assets and distributing the collection amongst the partners. The liquidation of partnership takes following steps from the point for view of accounting:

  1. Sale of non cash assets and realization of cash.
  2. Sharing the gain or loss on sale of non cash assets amongst the partners in their income sharing ratio.
  3. Disbursement of liabilities of partnership using the available cash.
  4. Distribution of balances cash amongst the partners in their capital ratio.

Requirement-1:

To prepare: Journal entries for liquidation of partnership when Equipment is sold for $650,000

Expert Solution
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Explanation of Solution

Journal entries for liquidation of partnership are as follows:

S.No. Accounts titles and Explanation Debit Credit
       
(a) Sale of inventory:    
       
  Cash $ 650,000  
  Gain on Sale   $ 32,800
  Equipment   $ 617,200
  (Being Equipment sold for cash)    
       
(b) Allocation of Gain or loss:    
       
  Gain on Sale $ 32,800  
  Lasu's Capital   $ 13,120
  Ramirez's Capital   $ 6,560
  Toney's Capital   $ 13,120
  (Being Gain shared by partners in the income sharing ratio)    
       
(c) Payment of Liabilities at book value:    
       
  Accounts Payable $ 342,600  
  Cash   $ 342,600
  (being liabilities paid at their book value)    
       
(d) Distribution of cash:    
       
  Lasu's Capital $ 313,520  
  Ramirez's Capital $ 202,360  
  Toney's Capital $ 140,120  
  Cash   $ 656,000
  (Being Cash distributed to partners)    

Working Note: The distribution of cash is calculated as follows:

  Lasu Ramirez Toney Total
Cash       $ 348,600
Add: Sale of Equipment       $ 650,000
Less: Payment of Liabilities       $ (342,600)
Net Cash Available       $ 656,000
         
Partner's Capital $ 300,400 $ 195,800 $ 127,000 $ 623,200
Add: Gain on Sale (Shared in the Ratio 2:1:2) $ 13,120 $ 6,560 $ 13,120 $ 32,800
Capital Balance/ (Deficit) $ 313,520 $ 202,360 $ 140,120 $ 656,000
Distribution of Cash $ 313,520 $ 202,360 $ 140,120 $ 656,000
To determine

Requirement-2:

To prepare: Journal entries for liquidation of partnership when Equipment is sold for $530,000

Expert Solution
Check Mark

Explanation of Solution

Journal entries for liquidation of partnership are as follows:

S.No. Accounts titles and Explanation Debit Credit
       
(a) Sale of inventory:    
       
  Cash $ 530,000  
  Loss on Sale $ 87,200  
  Equipment   $ 617,200
  (Being Equipment sold for cash)    
       
(b) Allocation of Gain or loss:    
       
  Lasu's Capital $ 34,880  
  Ramirez's Capital $ 17,440  
  Toney's Capital $ 34,880  
  Loss on Sale   $ 87,200
  (Being loss shared by partners in the income sharing ratio)    
       
(c) Payment of Liabilities at book value:    
       
  Accounts Payable $ 342,600  
  Cash   $ 342,600
  (being liabilities paid at their book value)    
       
(d) Distribution of cash:    
       
  Lasu's Capital $ 265,520  
  Ramirez's Capital $ 178,360  
  Toney's Capital $ 92,120  
  Cash   $ 536,000
  (Being Cash distributed to partners)    

Working Note: The distribution of cash is calculated as follows:

  Lasu Ramirez Toney Total
Cash       $ 348,600
Add: Sale of Equipment       $ 530,000
Less: Payment of Liabilities       $ (342,600)
Net Cash Available       $ 536,000
         
Partner's Capital $ 300,400 $ 195,800 $ 127,000 $ 623,200
Less: Loss on Sale (Shared in the Ratio 2:1:2) $ (34,880) $ (17,440) $ (34,880) $ (87,200)
Capital Balance/ (Deficit) $ 265,520 $ 178,360 $ 92,120 $ 536,000
Distribution of Cash $ 265,520 $ 178,360 $ 92,120 $ 536,000
To determine

Requirement-3:

To prepare: Journal entries for liquidation of partnership when Equipment is sold for $200,000 and the partner with deficit bring it in cash

Expert Solution
Check Mark

Explanation of Solution

Journal entries for liquidation of partnership are as follows:

S.No. Accounts titles and Explanation Debit Credit
       
(a) Sale of inventory:    
       
  Cash $ 200,000  
  Loss on Sale $ 417,200  
  Equipment   $ 617,200
  (Being Equipment sold for cash)    
       
(b) Allocation of Gain or loss:    
       
  Lasu's Capital $ 166,880  
  Ramirez's Capital $ 83,440  
  Toney's Capital $ 166,880  
  Loss on Sale   $ 417,200
  (Being loss shared by partners in the income sharing ratio)    
       
(c) Payment of Liabilities at book value:    
       
  Accounts Payable $ 342,600  
  Cash   $ 342,600
  (being liabilities paid at their book value)    
       
(d) Distribution of cash:    
       
  Lasu's Capital $ 133,520  
  Ramirez's Capital $ 112,360  
  Toney's Capital   $ 39,880
  Cash   $ 206,000
  (Being Cash distributed to partners)    

Working Note: The distribution of cash is calculated as follows:

  Lasu Ramirez Toney Total
Cash       $ 348,600
Add: Sale of Equipment       $ 200,000
Less: Payment of Liabilities       $ (342,600)
Net Cash Available       $ 206,000
         
Partner's Capital $ 300,400 $ 195,800 $ 127,000 $ 623,200
Less: Loss on Sale (Shared in the Ratio 2:1:2) $ (166,880) $ (83,440) $ (166,880) $ (417,200)
Capital Balance/ (Deficit) $ 133,520 $ 112,360 $ (39,880) $ 206,000
Distribution of Cash $ 133,520 $ 112,360 $ (39,880) $ 206,000
To determine

Requirement-4:

To prepare: Journal entries for liquidation of partnership when Equipment is sold for $150,000 and the partner with deficit bring it in cash

Expert Solution
Check Mark

Explanation of Solution

Journal entries for liquidation of partnership are as follows:

S.No. Accounts titles and Explanation Debit Credit
       
(a) Sale of inventory:    
       
  Cash $ 150,000  
  Loss on Sale $ 467,200  
  Equipment   $ 617,200
  (Being Equipment sold for cash)    
       
(b) Allocation of Gain or loss:    
       
  Lasu's Capital $ 186,880  
  Ramirez's Capital $ 93,440  
  Toney's Capital $ 186,880  
  Loss on Sale   $ 467,200
  (Being loss shared by partners in the income sharing ratio)    
       
(c) Payment of Liabilities at book value:    
       
  Accounts Payable $ 342,600  
  Cash   $ 342,600
  (being liabilities paid at their book value)    
       
(d) Distribution of cash:    
       
  Lasu's Capital $ 73,600  
  Ramirez's Capital $ 82,400  
  Cash   $ 156,000
  (Being Cash distributed to partners)    

Working Note: The distribution of cash is calculated as follows:

  Lasu Ramirez Toney Total
Cash       $ 348,600
Add: Sale of Equipment       $ 150,000
Less: Payment of Liabilities       $ (342,600)
Net Cash Available       $ 156,000
         
Partner's Capital $ 300,400 $ 195,800 $ 127,000 $ 623,200
Less: Loss on Sale (Shared in the Ratio 2:1:2) $ (186,880) $ (93,440) $ (186,880) $ (467,200)
Capital Balance/ (Deficit) $ 113,520 $ 102,360 $ (59,880) $ 156,000
Sharing of Deficit of Toney's Capital (In the ratio 2:1) $ (39,920) $ (19,960) $ 59,880  
         
Distribution of Cash $ 73,600 $ 82,400 $ - $ 156,000

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