Question

March, April, and May have been in partnership for a number of years. The partners allocate all profits and losses on a 4:2:2 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	$	25,000	Liabilities	$	84,000
Accounts receivable		112,000	March, capital		56,000
Inventory		94,000	April, capital		89,000
Land, building, and equipment (net)		58,000	May, capital		60,000
Total assets	$	289,000	Total liabilities and capital	$	289,000

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.)

1. Sold all inventory for $70,000 cash.
2. Paid $11,700 in liquidation expenses.
3. Paid $54,000 of the partnership’s liabilities.
4. Collected $55,000 of the accounts receivable.
5. Distributed safe cash balances; the partners anticipate no further liquidation expenses.
6. Sold remaining accounts receivable for 20 percent of face value.
7. Sold land, building, and equipment for $31,000.
8. Paid all remaining liabilities of the partnership.
9. Distributed cash held by the business to the partners.

Answer 1

SOLUTION

JOURNAL ENTRIES

S.No	Particulars		Debit ($)	Credit($)
1	CASH A/C	DR	70000
	LOSS ON REALISATION	DR	24000
	TO INVENTORY			94000
	(Being inventory sold at a loss of 24000)
2	LIQUIDATION EXPENSES A/C	DR	11700
	TO CASH A/C			11700
	(Being liquidation expenses paid in cash)
3	LIABILITIES A/C	DR	54000
	TO CASH A/C			54000
	(Being amount paid for payment of liabilities)
4	CASH A/C	DR	55000
	TO ACCOUNTS RECEIVABLE			55000
	(Being amount collected from accounts receivable)
5	NO ENTRY
6	CASH A/C	DR	11400
	LOSS ON REALISATION	DR	45600
	TO ACCOUNTS RECEIVABLE			57000
	(Being amount received from remaining debtors
	only up to 20% of the face value)
7	CASH A/C	DR	31000
	LOSS ON REALISATION	DR	27000
	TO LAND, BUILDING AND EQIPMENT			58000
	(Being fixed assets sold at a loss of 27000)
8	LIABILITIES A/C	DR	30000
	TO CASH A/C			30000
	(Being remaining liabilities paid in cash)
9	MARCH CAPITAL A/C	DR	13850
	APRIL CAPITAL A/C	DR	67925
	MAY CAPITAL A/C	DR	38925
	TO CASH A/C			120700
	(Being excess amount paid to partners)

WORKING NOTES

REALISATION ACCOUNT
TO ASSETS TRANSFERRED				BY LIABILITIES TRANSFERRED
ACCOUNTS RECEIVABLE			112000	SUNDRY LIABILITIES			84000
INVENTORY			94000
LAND, BUILDING AND EQUIP			58000
TO CASH A/C-LIABILITIES PAID			84000	BY CASH A/C -
TO CASH A/C-LIQUIDATION			11700	INVENTORY			94000
EXPENSES				ACCOUNTS RECEIVABLE			66400
				LAND, BUILDING AND EQUIP			31000
				BY LOSS TRANFERRED TO
				CAPITAL ACCOUNTS -
				MARCH		42150
				APRIL		21075
				MAY		21075	84300
			359700				359700

CASH ACCOUNT
TO BALANCE B/D		25000	BY REALISATION A/C		95700
TO REALISATION A/C		191400	BY CAPITAL A/CS
			MARCH		13850
			APRIL		67925
			MAY		38925
		216400			216400

CALCULATION OF AMOUNT TO BE PAID TO PARTNERS ON ACCOUNT OF THEIT CAPITAL

1. MARCH = 56000 - 42150 = 13850

2.APRIL = 89000 - 21075 = 67925

3. MAY = 60000 - 21075 = 38925