Question

Alex and Bess have been in partnership for many years. The partners, who share profits and losses on a 60:40 basis, respectively, wish to retire and have agreed to liquidate the business. Liquidation expenses are estimated to be $8,500. At the date the partnership ceases operations, the balance sheet is as follows: Cash $ 57,000 Liabilities $ 43,500 Noncash assets 160,000 Alex, capital 96,000 Bess, capital 77,500 Total assets $ 217,000 Total liabilities and capital $ 217,000 Part A: Prepare journal entries for the following transactions: Distributed safe cash payments to the partners. Paid $26,100 of the partnership’s liabilities. Sold noncash assets for $173,500. Distributed safe cash payments to the partners. Paid remaining partnership liabilities of $17,400. Paid $6,800 in liquidation expenses; no further expenses will be incurred. Distributed remaining cash held by the business to the partners.

Answer 1

	Particular	Dr Amt	Cr amt
1	Distributed safe cash payments to the partners
	Bess capital   (WN-1)	5000
	To cash		5000
	(Distributed safe cash payments to the partners)
2	Paid $26,100 of the partnership’s liabilities
	Liability	26100
	To cash		26100
3	Sold noncash assets for $173,500.
	Cash	173500
	To non cash asset		160000
	To alex capital (13500*60%)		8100
	To Bess capital (13500*40%)		5400
	(gain= 173500-160000=13500)
4	Distributed safe cash payments to the partners
	Alex capital	99238
	Bess capital	74262
	To cash		173500
5	Paid remaining partnership liabilities of $17,400
	Liability	17400
	To cash		17400
6	Paid $6,800 in liquidation expenses
	Alex capital (6800*60%)	4080
	Bess capital (6800*40%)	2720
	To cash		6800
7	Distributed remaining cash held by the business to the partners
	Alex capital	782
	Bess capital	918
	To cash		1700

Profit and loss ratio is 60-40 hence liquidation expn and gain on sale of non current asset is distributed in this ration while capital repayment is in prop. to closing balance

WN-1

	Alex capital	Bess capital
capital balance	96000	77500
Less : non cash asset	96000	64000
(160000 *60%/40%)
Balance	0	13500
Excess cash		5000

Excess Cash
cash	57000
Less liability	43500
Less estimated liquidation expense	8500
Excess Cash	5000

WN-2

	Cash	non cash asset	Liability	Alex	Bess
Balance	57000	160000	-43500	-96000	-77500
Excess cash	-5000	0	0	0	5000
Updated balance	52000	160000	-43500	-96000	-72500
liability	-26100	0	26100	0	0
Updated balance	25900	160000	-17400	-96000	-72500
asset	173500	-160000	0	-8100	-5400
Updated balance	199400	0	-17400	-104100	-77900
Excess cash =(173500*104100/(104100+77900)); (173500*77900/(104100+77900))	-173500	0	0	99238	74262
Updated balance	25900	0	-17400	-4862	-3638
liability	-17400	0	17400	0	0
Updated balance	8500	0	0	-4862	-3638
liquidation expense (6800*60%;40%)	-6800	0	0	4080	2720
Updated balance	1700	0	0	-782	-918
Excess cash =(1700*782/(782+918));1700*918/(782+918))	-1700	0	0	782	918
Updated balance	0	0	0	0	0