Question

Maddy, Nimah and Ritida are partners within a technology consulting business. They have capital balances of $35 000, $25 000 and $12 000 respectively. They have an income ratio of 2:3:5. The partnership has the following assets and liabilities: Cash $20 000; Accounts Receivable $7 000; Computer Equipment $60 000; Accumulated Amortization – Computer Equipment $ 40000; Note Payable $15 000. On December 1, the partners decide to liquidate the assets and close the partnership. They manage to collect all of the Accounts Receivable but could get only $6600 for the computer equipment.

1. Show the entries to record the sale of the assets, collection of accounts receivable, the payment of the liabilities.
2. Show the entry to allocate the loss to the partners.

Answer 1

(a). Technology consulting sells the noncash assets (accounts receivable and equipment) and collect full amounts of accounts receivable and Collect only $6,600 for computer equiment. The entry is:

Cash $13,600

Accumulated Amortization-Equipment 40,000

Loss on Realization $13,400

Accounts Receivable 7,000

Equipment   60,000

(To record realization on noncash assets)

Partnership liablities consists of Notes Payable $15,000. Technology Consulting pays creditors in full by a cash payment of $15,000. The entry is:

Notes Payable $15,000

Cash $15,000

(To record payment of partnership liabilities)

(b). Technology Consulting allocates the $13,400 loss on realization to the partners based on their income ratios, which are 2:3:5.

Maddy, Capital ($13,400 2/10) $2,680

Nimah, Capital ($13.400 3/10) 4,020

Ritida, Capital ($13,400 5/10) 6,700

Loss on Realization $13,000

(To allocate loss to partners' capital accounts)