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The partnership of Butler, Osman, and Ward was formed several years ago as a local tax preparation firm. Two partners have reached retirement age, and the partners have decided to terminate operations and liquidate the business. Liquidation expenses of $39,000 are expected. The partnership balance sheet at the start of liquidation is as follows:
Cash | $ | 35,000 | Liabilities | $ | 175,000 | ||
Accounts receivable | 65,000 | Butler, loan | 35,000 | ||||
Office equipment (net) | 55,000 | Butler, capital (25%) | 75,000 | ||||
Building (net) | 135,000 | Osman, capital (25%) | 35,000 | ||||
Land | 125,000 | Ward, capital (50%) | 95,000 | ||||
Total assets | $ | 415,000 | Total liabilities and capital | $ | 415,000 | ||
The following transactions transpire in chronological order during the liquidation of the partnership:
Collected 90 percent of the accounts receivable and wrote the remainder off as uncollectible.
Sold the office equipment for $22,500, the building for $98,000, and the land for $140,000.
Distributed safe payments of cash.
Paid all liabilities in full.
Paid actual liquidation expenses of $32,500 only.
Made final cash distributions to the partners.
Prepare journal entries to record these liquidation transactions
On liquidation of partnership, all the assets except cash are sold and all the liabilities are to be paid off in addition to liquidation expenses.
In the given question profit sharing ratio is not given, neither the capital balances of partners are given, so we will assume the profit sharing ratio to be 1: 1:1 of Butlar, Osman and Ward.
The balance after all the liabilities are paid to partners. Journal entries for recording the following transactions are as follows:
Journal
S.no |
General Journal | Debit Amount ($) | Credit Amount ($) | |
1. | Cash A/c Dr. | 58,500 | ||
Butlar Capital A/c Dr. | 2,166 | |||
Osman Capital A/c Dr. | 2,167 | |||
Ward Capital A/c Dr. | 2,167 | |||
To Accounts Receivables A/c | 65,000 | |||
2. | Cash A/ c Dr. | 22,500 | ||
Butlar' s Capital A/c Dr. | 10,834 | |||
Osman's Capital A/c Dr. | 10,833 | |||
Ward's Capital A/c Dr. | 10,833 | |||
To Office Equipment A/c | 55,000 | |||
S.no | General Journal | Debit Amount ($) | Credit amount ($) |
3. |
Cash A/c Dr |
98,000 | |
Butler's Capital A/c | 12,334 | ||
Osman' s Capital A/c | 12,333 | ||
Ward's Capital A/c | 12,333 | ||
To Building A/c | 135,000 | ||
4. | Cash A/c Dr. | 140,000 | |
To Butlar's Capital A/c | 5,000 | ||
To Osman's Capital A/c | 5,000 | ||
To Ward's Capital A/c | 5,000 | ||
To Land A/c | 125,000 | ||
5. | Liquidation Expenses A/c Dr | 32,500 | |
To Cash A/c | 32,500 | ||
6. | Butlar's capital A/c Dr. | 86,843 | |
Osman' s Capital A/c Dr. | 86,844 | ||
Ward's Capital A/c Dr | 86,844 | ||
To Cash A/c | 260,531 | ||
Statement For Calculating Final Cash Disbursements to Partners
Particulars | Cash | Butlar's Capital A/c | Osman's Capital A/c | Ward's Capital A/c |
Balance | 35,000 | - | - | - |
Accounts Receivables | 58,500 | (2166) | (2167) | (2167) |
Office Equipment | 22,500 | (10,834) | (10833) | (10833) |
Building | 98,000 | (12,334) | (12,333) | (12,333) |
Land | 140,000 | 5,000 | 5,000 | 5,000 |
Liquidation Expenses | (32,500) | - | - | - |
Final amount of cash to be distributed | 321,500 | 107,177 | 107,177 | 107,177 |
Final amount to partners | 86,843 | 86,844 | 86,844 |