Question

In: Accounting

March, April, and May have been in partnership for a number of years. The partners allocate...

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.

Solutions

Expert Solution

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.

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