Question

Fred and George have been in partnership for many years. The partners, who share profits and losses on a 60:40 basis, respectively, wish to retire and have agreed to liquidate the business. Liquidation expenses are estimated to be $10,000. At the date the partnership ceases operations, the balance sheet is as follows:

  

Cash	$	100,000	Liabilities	$	80,000
Noncash assets		200,000	Fred, capital		100,000
			George, capital		120,000
Total assets	$	300,000	Total liabilities and capital	$	300,000

  

1.	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.	Distributed safe cash payments to the partners.
b.	Paid $40,000 of the partnership’s liabilities.
c.	Sold noncash assets for $220,000.
d.	Distributed safe cash payments to the partners.
e.	Paid all remaining partnership liabilities of $40,000.
f.	Paid $8,000 in liquidation expenses; no further expenses will be incurred.
	g. Distributed remaining cash held by the business to the partners. Journal entry worksheet Record the sale of noncash assets. Note: Enter debits before credits. Transaction General Journal Debit Credit c. 2. Prepare a final statement of partnership liquidation. ] Statement of Partnership Liquidation Cash Noncash Assets Liabilities Fred, Capital George, Capital Beginning balances Distribution to partners Paid liabilities Sold noncash assets Updated balances $0 $0 $0 $0 $0 Distribution to partners Updated balances $0 $0 $0 $0 $0 Paid liabilities Paid liquidation expenses Updated balances $0 $0 $0 $0 $0 Distribution to partners Closing balances $0 $0 $0 $0 $0

Answer 1

Journal Entries :

a) no entry

b)   paid $ 40,000 partnership liabilities entry

   Account                      Debit               Credit

    Liabilities                     $ 40,000

   Cash                                                        $ 40,000

C) Sold non cash assets for $ 2,20,000

       Account                      Debit                  Credit

      Cash                                $ 2,20,000

     Non cash Assets                                    $ 2,00,000

     Profit on sale                                       $ 20,000         

Allocation of profit on sale to partners

       Account                      Debit                  Credit

Profit on sale                    $ 20,000

Fred capital (60%)                                   $ 12,000

George capital (40%)                              $ 8,000

d) No entry

e) paid $ 40,000 partnership liabilities entry

   Account                      Debit               Credit

    Liabilities                     $ 40,000

   Cash                                                        $ 40,000

f) paid $ 8,000 in liquidation expenses

   Account                          Debit               Credit

    Liquidation expenses     $ 8,000

   Cash                                                        $ 8,000

g) remaining cash distributed to patners

   cash available to partnership ($ 1,00,000)plus cash from disposal of non assets ($ 2,20,000) which equals to ( $ 3,20,000) this cash is used to settle the liabilities and the remaining cash is

$ 1,00,000 + $ 2,20,000 - $ 80,000 = $ 2,40,000

Remaining cash distributed to partners

Account                          Debit               Credit

    Cash                             $ 2,40,000

Fred capital (60%)                               $ 1,44,000

George capital (40%)                            $ 96,000

2)

]
Statement of Partnership Liquidation
	Cash	Noncash Assets	Liabilities	Fred, Capital	George, Capital
Beginning balances	$ 1,00,000	$ 2,00,000	$ - 80,000	$ 1,00,000	$ 1,20,000
Distribution to partners
Paid liabilities	$ - 40,000		$ 40,000		$ 0
Sold noncash assets	$ 220,000	$ -2,00,000		$ 12,000	$ 8,000
Updated balances	$2,80,000	$0	$-40,000	$1,12,000	$ 1,28,000
Distribution to partners			$ -8,000
Updated balances
Paid liabilities	$-40,000		$ 40,000		$0
Paid liquidation expenses	$- 8,000		$ 8000
Updated balances	$2,32,000	$0	$0
Distribution to partners	$-2,32,000			$ 1,39,200	$ 92,800
Closing balances				$ 2,51,200	$ 2,20800