Question

Alex and Bess have been in partnership for many years. The partners, who share profits and losses on a 70:30 basis, respectively, wish to retire and have agreed to liquidate the business. Liquidation expenses are estimated to be $8,000. At the date the partnership ceases operations, the balance sheet is as follows:

Cash	$	56,000	Liabilities	$	43,000
Noncash assets		150,000	Alex, capital		105,000
			Bess, capital		58,000
Total assets	$	206,000	Total liabilities and capital	$	206,000

Part A: Prepare journal entries for the following transactions:

1. Distributed safe cash payments to the partners.
2. Paid $25,800 of the partnership’s liabilities.
3. Sold noncash assets for $163,000.
4. Distributed safe cash payments to the partners.
5. Paid remaining partnership liabilities of $17,200.
6. Paid $6,400 in liquidation expenses; no further expenses will be incurred.
7. Distributed remaining cash held by the business to the partners.

8. Part B: Prepare a final statement of partnership liquidation.

a. Distributed safe cash payments to the partners.
b. Paid $25,800 of the partnership’s liabilities.
c. Sold noncash assets for $163,000.
d. Distributed safe cash payments to the partners.
e. Paid remaining partnership liabilities of $17,200.
f. Paid $6,400 in liquidation expenses; no further expenses will be incurred.
g. Distributed remaining cash held by the business to the partners.

Answer 1

Solution:

Part-A

1. Sold non cash assets for $163,000

Particulars	Debit ($)	Credit($)
Cash A/c Dr	1,63,000
To Non Cash Assets A/c		1,50,000
To Profit on Liquidation A/c		13,000
(Being Assets Sold in profit)
Profit on Liquidation A/c Dr	13,000
To partnership Liquidation Account A/c		13,000
(Being profit transferred to partnership Liquidation A/c)

2. Paid $25,800 and $17,200 of the partnerships liabilities

Particulars	Debit ($)	Credit($)
Liabilities A/c Dr	43,000
To Cash A/c		43,000
(Being Liabilities Paid)

3. Paid $6,400 In liquidation expenses

Particulars	Debit ($)	Credit($)
Partnership Liquidation Expense A/c Dr	6,400
To Cash A/c		6,400
(Being Liquidaion expense paid)
Partnership Liquidation Account Dr	6,400
To partnership Liquidation Expense		6,400
(Being amount charged from partnership Liquidation account)

4. Transfer of excess profit in profit sharing ratio to partners:

Excess of Profit on liquidation = $13,000-$6,400 =6,600

Particulars	Debit ($)	Credit($)
Partnership Liquidation A/c Dr	6,600
To Alex, Capital A/c(6600*70%)		4,620
To Bess, Capital A/c(6600*30%)		1,980
(Being excess profit Distributed)

5. Being payment made to partners equivalent to their capital:

Particulars	Debit ($)	Credit($)
Alex capital A/c Dr($105,000+$4,620)	1,09,620
Bess Capital A/c Dr($58,000+1,980)	59,980
To Cash A/c		1,69,600
(Being Cash Distributed)

Part-B

Partnership Liquidation Account:

Particulars	Debit	Credit
By profit on Liquidation		13,000
To Expense on Liquidation	6,400
To Alex, Capital	4,620
To Bess, Capital	1,980
Total	13,000	13,000