Liquidating Partnerships—Capital Deficiency Lewis, Zapata, and Fowler share equally in net income and net losses. After...

Liquidating Partnerships—Capital Deficiency Lewis, Zapata, and Fowler share equally in net income and net losses. After the partnership sells all assets for cash, divides the losses on realization, and pays the liabilities, the balances in the capital accounts are as follows: Lewis, $23,300 Cr.; Zapata, $51,300 Cr.; Fowler, $14,900 Dr. a. What term is applied to the debit balance in Fowler's capital account? b. What is the amount of cash on hand? $ c. Journalize the transaction that must take place for Lewis and Zapata to receive cash in the liquidation process equal to their capital account balances. If an amount box does not require an entry, leave it blank.

Solutions

Expert Solution

a. The term applied to the Fowlers capital account is called Capital deficiency.
- Fowlers capital balance is negative i.e. debit.
- Hence negative balance indicates deficiency of capital

b. Amount of cash on hand is calculated below -

Sr. No.	Calculation of Cash on hand	Amount	Dr/Cr
i.	Capital account balance of Lewis	$ 23,300	Cr
ii.	Capital account balance of Zapata	$ 51,300	Cr
iii.	Capital account balance of Fowler	$ 14,900	Dr
	Cash on hand (i+ii-iii)	$ 59,700

Hence, Amount of cash on hand is $59,700

c. Transaction to take place at the time of liquidation for cash to be received by Lewis & Zapata is journalized below -

Date	Journal Entry	Dr.	Cr.
	Lewis Capital	$ 23,300
	Zapata's Capital	$ 51,300
	Fowler's capital		$ 14,900
	Cash		$ 59,700

Lewis & Zapata are debited as they have to receive cash & Fowler is credited as he has to pay cash to setlle capital accounts.

ekkarill92 answered 1 year ago

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