Chapter 12, Problem 12.5BPR

### Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

Chapter
Section

### Accounting

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

# Statement of partnership liquidationAfter the accounts are closed on April 10, prior to liquidating the partnership, the capital accounts of Zach Fairchild, Austin Lowes, and Amber Howard are $42,000,$7,500, and $36,500, respectively. Cash and noncash assets total 525,500 and$84,500, respectively. Amounts owed to creditors total $22,000. The partners share income and losses in the ratio of 1:1:2. Between April 10 and April 30, the noncash assets are sold for$48,500, 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.

1.

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, loss on realization or gain on realization is determined.

To prepare:  A statement of partnership liquidation.

Explanation

Working Notes:

W.N-1

Calculation of division of realization loss among partners.

The following table determines the realization loss.

 Book value of Non cash asset (A) $84,500 Sale price of Non cash asset (B)$  48,500 Realization loss (A) – (B) \$  36,000

Table (2)

The profit and loss sharing ratio among partners is 1:1:2

The following table shows the division of loss among partners F, L and H, as per their profit and loss sharing ratio...

2. a

To determine

To record: The journal entry to allocate the partner’s deficiency, assuming that the partner with capital deficiency declares bankruptcy.

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