Question

Alex and Bess have been in partnership for many years. The partners, who share profits and losses on a 70:30 basis, respectively, wish to retire and have agreed to liquidate the business. Liquidation expenses are estimated to be $8,000. At the date the partnership ceases operations, the balance sheet is as follows: Cash $ 56,000 Liabilities $ 43,000 Noncash assets 150,000 Alex, capital 105,000 Bess, capital 58,000 Total assets $ 206,000 Total liabilities and capital $ 206,000 Part A: Prepare journal entries for the following transactions: Distributed safe cash payments to the partners. Paid $25,800 of the partnership’s liabilities. Sold noncash assets for $163,000. Distributed safe cash payments to the partners. Paid remaining partnership liabilities of $17,200. Paid $6,400 in liquidation expenses; no further expenses will be incurred. Distributed remaining cash held by the business to the partners. Part B: Prepare a final statement of partnership liquidation.Required A Required B Prepare journal entries for the following transactions: (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) a. Distributed safe cash payments to the partners. b. Paid $25,800 of the partnership’s liabilities. c. Sold noncash assets for $163,000. d. Distributed safe cash payments to the partners. e. Paid remaining partnership liabilities of $17,200. f. Paid $6,400 in liquidation expenses; no further expenses will be incurred. g. Distributed remaining cash held by the business to the partners.

Answer 1

Solution:

A

a) Journal entries as follows:

Partnership has in cash $56,000 , liabilities of $43,000 and estimated liquidation expenses of $8,000 . Thus , there is only $8,000 that can safely paid to the partners before the liquidation of non cash assets. This amount is allocated to the two partners on the basis of their potential capital balance assuming that non cash assets are scrapped for a loss of $150,000 and liquidation expenses are $8,000

Partner	Current capital balance	Share of Maximum loss	Potential capital
A	$105,000	$158,000 * 70% = 110,600	-$5,600
B	$58,000	$158,000 * 30% = 47,400	$10,600

A has a deficit of $5,000 which will be distributed to B which can be showcased in a following way

Date	Account Title and Explanation	PR No	Debit $	Credit $
	B capital		5,000
	Cash			5,000
	(To record the distributed safe payment)

b)

Date	Account Title and Explanation	PR No	Debit $	Credit $
	Liabilities		25,800
	Cash			25,800
	(To record cash paid for the liabilities)

c)

Non cash assets selling journal entry will be as follows:

Date	Account Title and Explanation	PR No	Debit $	Credit $
	Cash		163,000
	A capital(70% of gain)			9,100
	B capital(30% of gain)			3,900
	Non cash assets			150,000
	(To record the sale of non cash assets)

d)

Safe payment can be calculated as follows:

	Cash	Non cash assets	Liabilities	A capital 70%	B capital 30%
Beginning balance	$56,000	$150,000	-$43,000	-$114,100	-$48,900
Distribution to partners	-$8,000	0	0	0	$8,000
Paid liabilities	-$25,800	0	$25,800	0	0
Sold non cash assets	$163,000	-$150,000	0	-$9,100	-$3,900
Updated balances	$185,200	0	-$17,200	-$123,200	-$44,800
Maximum liabilities	-$17,200		$17,200	0	0
Maximum liquidation expenses	-$8,000	0	0	$5,600	$2,400
Safe balance	$160,000	0	0	-$117,600	-$42,400

The entry for the same will be as follows:

Date	Account Title and Explanation	PR No	Debit $	Credit $
	A capital		117,600
	B capital		42,400
	Cash			160,000
	(To record the safe payments)

e)

Paying liability entry will be as follows:

Date	Account Title and Explanation	PR No	Debit $	Credit $
	Liabilities		17,200
	Cash			17,200
	(To record cash paid for the liabilities)

f)

Liquidation expense entry will be as follows:

Date	Account Title and Explanation	PR No	Debit $	Credit $
	A capital(70% of expenses)		4,480
	B capital(30%)		1,920
	Cash			6,400
	(To record the liquidation expenses)

g)

Date	Account Title and Explanation	PR No	Debit $	Credit $
	A capital		1,120
	B capital		480
	Cash			1,600
	(To record the remaining payment distribution)

B

Statement of partnership liquidation will be as follows:

	Cash	Non cash assets	Liabilities	A capital 70%	B capital 30%
Beginning balance	$56,000	$150,000	(43,000)	(105,000)	(45,000)
Distribution to partners	($8,000)				$8,000
Paid liabilities	($25,800)		$25,800
Sold non cash assets	$163,000	($150,000)		(9,100)	($3,900)
update balance	$185,200	0	($17,200)	($114,100)	($40,900)
Distribution to partners	(160,000)	0	0	117,600	42,400
Update balances	$25,200	0	(17,200)	(5,600)	(2,400)
Paid liabilities	(17,200)	0	17,200	0	0
Paid liquidation expenses	(6,400)	0	0	4,480	1,920
Update balances	1,600	0	0	(1,120)	(480)
Distribution to partners	(1,600)	0	0	1,120	480
Closing balances	0	0	0	0	0