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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

Statement of partnership liquidation

On August 3, the firm of Chapelle, Rock, and Pryor decided to liquidate its partnership. The partners have capital balances of $14,000, $102,000, and $86,000, respectively. The cash balance is $65,000, the book values of noncash assets total $167,000, and liabilities total $30,000. The partners share income and losses in the ratio of 1:2:2.

Instructions

  1. 1. Prepare a statement of partnership liquidation, covering the period August 3-29, for each of the following independent assumptions:
    1. a. All of the noncash assets are sold for $217,000 in cash, the creditors are paid, and the remaining cash Ls distributed to the partners.
    2. b. All of the noncash assets are sold for $72,000 in cash, the creditors are paid, the partner with the debit capital balance pays the amount owed to the firm, and the remaining cash is distributed to the partners.
  2. 2. Assume that the partner with the capital deficiency in part (b) 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. 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, 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 Profit among partners:

The following table determines the realization profit.

 Sale price of Non cash asset (A)  $  217,000
Book value of Non cash asset (B)  $  167,000
Realization profit (A) – (B)  $  50,000

Table (2)

The profit and...

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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