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Required information Skip to question [The following information applies to the questions displayed below.] The partnership...

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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:

  1. Collected 90 percent of the accounts receivable and wrote the remainder off as uncollectible.

  2. Sold the office equipment for $22,500, the building for $98,000, and the land for $140,000.

  3. Distributed safe payments of cash.

  4. Paid all liabilities in full.

  5. Paid actual liquidation expenses of $32,500 only.

  6. Made final cash distributions to the partners.

Prepare journal entries to record these liquidation transactions

Solutions

Expert Solution

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

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