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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Distribution of cash upon liquidation

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.

  1. a. What is the amount of a gain or loss on realization?
  2. b. How should the gain or loss be divided between Hewitt and Patel?
  3. c. How should the cash be divided between Hewitt and Patel?

a.

To determine

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.

To determine:  The amount of gain or loss on realization.

Explanation

The following table shows the amount of gain or loss on realization

Amount
Cash balance (A) $35,000
Sum of capital accounts (
To determine

(b) and (c)

To divide:  The loss and cash between H and P.

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