In: Accounting
March, April, and May have been in partnership for a number of years. The partners allocate all profits and losses on a 2:3:1 basis, respectively. Recently, each partner has become personally insolvent and, thus, the partners have decided to liquidate the business in hopes of remedying their personal financial problems. As of September 1, the partnership’s balance sheet is as follows:
Cash | $ | 30,000 | Liabilities | $ | 119,000 |
Accounts receivable | 122,000 | March, capital | 42,000 | ||
Inventory | 99,000 | April, capital | 94,000 | ||
Land, building, and equipment (net) | 69,000 | May, capital | 65,000 | ||
Total assets | $ | 320,000 | Total liabilities and capital | $ | 320,000 |
Prepare journal entries for the following transactions: (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
A) Sold all inventory for $75,000 cash.
B) Paid $13,200 in liquidation expenses.
C) Paid $59,000 of the partnership’s liabilities.
D) Collected $74,000 of the accounts receivable.
E) Distributed safe cash balances; the partners anticipate no further liquidation expenses.
F) Sold remaining accounts receivable for 35 percent of face value.
G) Sold land, building, and equipment for $36,000.
H)Paid all remaining liabilities of the partnership.
I) Distributed cash held by the business to the partners.
NO | Explanation | Debit | Credit |
a | Cash | 75000 | |
March Capital 24000/6*2 |
8000 | ||
April Capital | 12000 | ||
May Capital | 4000 | ||
Inventory | 99000 | ||
(99000-75000)=24000 2+3+1 = 6 |
|||
b | March Capital | 4400 | |
April Capital | 6600 | ||
May Capital | 2200 | ||
Cash | 13200 | ||
13200/6*2,3,1 | |||
c | Liabilities | 59000 | |
Cash | 59000 | ||
d | Cash | 74000 | |
Accounts Receivables | 74000 | ||
e | April | 9850 | |
May | 36950 | ||
Cash | 46800 | ||
f | Cash 48000*35% |
16800 | |
March Capital (48000-16800/6*2 |
10400 | ||
April Capital | 15600 | ||
May Capital | 5200 | 48000 | |
(122000-74000) | |||
g | Cash | 36000 | |
March Capital | 11000 | ||
April Capital | 16500 | ||
May Capital | 5500 | ||
Land , Building, Equipment | 69000 | ||
h | Liabilities | 60000 | |
Cash | 60000 | ||
(119000-59000) |
Partner | Current capital adjusted | Share of maximum loss | Potential Capital |
March | 29600 | 39000 | -9400 |
April | 75400 | 58500 | 16900 |
May | 58800 | 19500 | 39300 |
Based on the above potentiallosses, March would have a deficit capital balance of $9,400 which in turn has to be allocated to the two partners having positive capital balances: | |||
Partner | Potential Capital (Above) | Share of March's Deficit | Potential Capital |
April | 16900 | -7050 | 9850 |
May | 39300 | -2350 | 36950 |
*Maximum losses could be suffered on the remaining (122000-74000) $48,000 in accounts receivable and the $69,000 in land, building, and equipment. |