Hewitt and Patel are partners, sharing gains and losses equally. They decide to terminate their partnership. Prior to realization, their capital balances are $28,000 and $18,000, respectively. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $35,000.a. What is the amount of a gain or loss on realization?b. How should the gain or loss be divided between Hewitt and Patel?c. How should the cash be divided between Hewitt and Patel?

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Asked Dec 19, 2019
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Hewitt and Patel are partners, sharing gains and losses equally. They decide to terminate their partnership. Prior to realization, their capital balances are $28,000 and $18,000, respectively. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $35,000.
a. What is the amount of a gain or loss on realization?
b. How should the gain or loss be divided between Hewitt and Patel?
c. How should the cash be divided between Hewitt and Patel?

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Expert Answer

Step 1

Partnership 

It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.

 Liquidating Partnership 

The winding up of process of partnership is called liquidation of partnership. At the time of liquidation of partnership realization of account is prepared.

Step 2

a.Determine the amount of gain or loss on realization.

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Amount Cash balance (A) $35,000 Sum of capital accounts ($28,000+$18,000) (B) $46,000 ($11,000) Loss on realization (A) - (B)

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Step 3

(b) and (c)

Divide the loss and cash between H...

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н Capital balances before realization S28,000 $18,000 -S5,500 $23,500 -$5,500 $22,500 Deduct: Division of loss on realization (1) Balances Cash distributed to partners $22,500 $23,500 SO SO Final balances

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