Question

In: Accounting

Sand, Mell, and Rand are partners who share incomes and losses in a 1:4:5 ratio. After...

Sand, Mell, and Rand are partners who share incomes and losses in a 1:4:5 ratio. After lengthy disagreements among the partners and several unprofitable periods, the partners decided to liquidate the partnership. Before the liquidation, the partnership balance sheet showed the following:

Cash $10,000

Total “other assets,” $106,000

Total liabilities, $88,000

Sand, Capital, $1,200

Mell, Capital, $11,700

Rand, Capital, $15,100

The “other assets” were sold for $ 85,000. Proceeds from the sale of other assets were used to payoff existing liabilities.

Determine the following:

1)The gain (or loss) realized on the sale of the assets and recording of liabilities’ payment.

2)The balances in the partners’ capital accounts after the distribution of this gain or loss to the capital accounts.

3)Assume that if any capital deficits exist, they are not made up and the deficient partner pays down his or her deficit to zero. How much cash will each of the partners receive in the final liquidation?

Solutions

Expert Solution

Balance Sheet
Assets Amount Liabilities Amount
Cash $    10,000.00 Total liabilities $    88,000.00
Other Assets $ 106,000.00 Partner's Capital A/c
Sand $      1,200.00
Mell $    11,700.00
RAND $    15,100.00
Total $ 116,000.00 Total $ 116,000.00
Journal Entries
Particular Amount(DR) Amount(CR)
1) Cash A/c $    85,000.00
Loss on realization $    21,000.00
   To Other Assets $                    106,000.00
(Being amount realized on sale of assets)
Sand=($21000*1/10) $      2,100.00
Mell=($21000*4/10) $      8,400.00
Rand=($21000*5/10) $    10,500.00
   To Loss on realization $                       21,000.00
(Being loss on realization distribute to partner's in their profit sharing ratio)
Total Liabilities $    88,000.00
    To Cash     $                       88,000.00
(Being amount paid to total liabilities)
2) Sand's Capital A/c
Particular Amount(Dr) Particular Amount(Cr)
   To Loss on realization $      2,100.00 By Balance B/d $      1,200.00
By Cash A/c $          900.00
Total $      2,100.00 Total $      2,100.00
Mell's Capital A/c
Particular Amount(Dr) Particular Amount(Cr)
   To Loss on realization $      8,400.00 By Balance B/d $    11,700.00
To Cash $      3,300.00
Total $    11,700.00 Total $    11,700.00
Rand's Capital A/c
Particular Amount(Dr) Particular Amount(Cr)
   To Loss on realization $    10,500.00 By Balance B/d $    15,100.00
To Cash $      4,600.00
Total $    15,100.00 Total $    15,100.00
3) Cash A/c
Particular Amount(Dr) Particular Amount(Cr)
To Balance b/d $    10,000.00 By Total Liabilities $    88,000.00
To Other assets $    85,000.00 By Mell's Capital A/c $      3,300.00
To Sand's Capital A/c $          900.00 By Rand's Capital A/c $      4,600.00
Total $    95,900.00 Total $    95,900.00

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