Question

On August 1, 2014, Salt, Pepper, and Spice agree to liquidate their partnership. Salt has a capital balance of $90,000, Pepper has a capital balance of $37,500, and Spice has a capital balance of $30,000. The partners share net income/net loss in a ratio of 4:3:3. Accounts payable amount to $60,000. Assets are shown on the balance sheet at $40,000 of cash and $177,500 of noncash assets. All the noncash assets are sold for $159,500.

Prepare entries to sell the non-cash assets, pay the liabilities, and distribute the remaining cash to the partners

Answer 1

Date	Particulars	Debit ($)	Credit ($)
(a)	Cash	159500
	Salt, capital	7200
	Pepper, capital	5400
	Spice, capital	5400
	To Noncash assets		To 177500
	(Being sale of non-cash assets)
(b)	Liabilities	60000
	To Cash		60000
	(Being payment of liabilities)
(c)	Salt, capital	82800
	Pepper, capital	32100
	Spice, capital	24600
	To cash		139500
	(Being distribution of remaining cash to partners)

Working notes:
1) Sale of non cash assets at a loss = ($177500 - $159500) = $18000, this is adjusted from partner's capital in their profit/loss sharing ratio of (4:3:3)
2) Available cash = ($40000 opening + $159500 sale of noncash assets - $60000 payment of liabilities) = $139500, this is used to pay off partner's remaining capital.
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