Chapter 12, Problem 6PA

### Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

Chapter
Section

### Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem

# On November 1, the firm of Sails, Welch, and Greenberg decided to liquidate its partnership.The partners have capital balances of $58,000,$72,000, and $10,000, respectively. The cash balance is$32,000, the book values of noncash assets total $128,000, and liabilities total$20,000. The partners share income and losses in the ratio of 2:2:1.Instructions 1. Prepare a statement of partnership liquidation, covering the period November 1–30, for each of the following independent assumptions: a. All of the noncash assets are sold for $156,000 in cash, the creditors are paid, and the remaining cash is distributed to the partners. b. All of the noncash assets are sold for$55,000 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. 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

Prepare statement of partnership liquidation.

Explanation

Working note 1

Calculation of division of realization Profit among partners:

The following table determines the realization profit.

 Â Sale price of Non cash asset (A) Â $Â 156,000 Book value of Non cash asset (B) Â$Â  128,000 Realization profit (A) â€“ (B) Â \$Â  28,000

Table (2)

The profit and loss sharing ratio among partners...

1. b

To determine

Prepare statement of partnership liquidation.

2. a

To determine

Record the journal entry to allocate the partner’s deficiency, assuming that the partner with capital deficiency declares bankruptcy.

2. b

To determine

Record the journal entry to distribute the cash among the partners, assuming that the partner with capital deficiency declares bankruptcy.

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