After the accounts are closed on February 3, prior to liquidating the partnership, the capital accounts of William Gerloff, Joshua Chu, and Courtney Jewett are $19,300, $4,500, and $22,300, respectively. Cash and noncash assets total $5,200 and $55,900, respectively.Amounts owed to creditors total $15,000. The partners share income and losses in the ratio of 2:1:1. Between February 3 and February 28, the noncash assets are sold for $34,300, the partner with the capital deficiency pays the deficiency to the partnership, and the liabilities are paid.Instructions1. Prepare a statement of partnership liquidation, indicating (a) the sale of assets and division of loss, (b) the payment of liabilities, (c) the receipt of the deficiency (from the appropriate partner), and (d) the distribution of cash.2. Assume that the partner with the capital deficiency declares bankruptcy and is unable to pay the deficiency. Journalize the entries to (a) allocate the partner’s deficiency and (b) distribute the remaining cash.

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Asked Dec 19, 2019
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After the accounts are closed on February 3, prior to liquidating the partnership, the capital accounts of William Gerloff, Joshua Chu, and Courtney Jewett are $19,300, $4,500, and $22,300, respectively. Cash and noncash assets total $5,200 and $55,900, respectively.
Amounts owed to creditors total $15,000. The partners share income and losses in the ratio of 2:1:1. Between February 3 and February 28, the noncash assets are sold for $34,300, the partner with the capital deficiency pays the deficiency to the partnership, and the liabilities are paid.

Instructions

1. Prepare a statement of partnership liquidation, indicating (a) the sale of assets and division of loss, (b) the payment of liabilities, (c) the receipt of the deficiency (from the appropriate partner), and (d) the distribution of cash.
2. Assume that the partner with the capital deficiency declares bankruptcy and is unable to pay the deficiency. Journalize the entries to (a) allocate the partner’s deficiency and (b) distribute the remaining cash.

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Expert Answer

Step 1

1) The statement of partnership liquidation of G, C and J is as follows:

 

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G, C AND J Statement of Partnership Liquidation For Period February 3–28 Non Cash Liabilities Capital Cash + G (2/4) C (1/4) J (1/4) $4,500 $22,300 Assets = Balances before $15,000| $19,300 $5,200 $55,900 realization Sale of assets and division ofloss $34,300 ($55,900) ($10,800) ($5,400) ($5,400) (W.N-1) Balances after ($900) $16,900 $39,500 so $15,000 $8,500 realization Payment of liabilities ($15,000) ($15,000) Balances after so $0 payment of liabilities $24,500 $8,500 ($900) $16,900 Receipt deficiency (W.N-2) of $900 $900 $0 $0 Balances $25,400 $0 $8,500 $16,900 Cash distributed ($25,400) -$8,500 $16,900 to partners $0 $0 Final balances $0 $0 $0 $0

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Step 2
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Working Notes: 1) Calculation of division of realization loss among partners. The following table detemines the realization loss. Book value of Non cash asset (A) $ 55,900 $ 34,300 Sale price of Non cash asset (B) Realization loss (A) – (B) $ 21,600 The profit and loss sharing ratio among partners is 2:1:1 The following table shows the division of loss among partners G, C and J as per their profit and loss sharing ratio. J Total Share of partners in firm (1/4) (2/4) (1/4) Share of realization loss $10,800 $5,400 $5,400 $21,600 (2:1:1) W.N-2 As per the instruction, partner with deficiency will pay the deficiency amount to the partnership. Thus, C has paid $900 to the partnership for his deficiency. Therefore C's capital account is credited or increased with $900 and cash is increased with $900.

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Step 3
  1. a

 

When a partner with capital deficiency declares bankruptcy, his or her capital deficiency balance will be shared between other partners in their income- sharing ratio.

 

The...

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Debit Credit Account Titles and Explanation Date (S) $600 $300 (S) G, Capital (1) J, Capital (2) C, Capital (To record the allocation of partner's capital deficiency.) $900

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