Question

After the accounts are closed on February 3, 2016, prior to liquidating the partnership, the capital accounts of William Gerloff, Joshua Chu, and Courtney Jewett are $19,520, $4,080, and $22,180, respectively. Cash and noncash assets total $4,880 and $55,940, respectively. Amounts owed to creditors total $15,040. The partners share income and losses in the ratio of 2:1:1. Between February 3 and February 28, the noncash assets are sold for $36,020, the partner with the capital deficiency pays the deficiency to the partnership, and the liabilities are paid. Required: 1. Prepare a statement of partnership liquidation, indicating (a) the sale of assets and division of loss, (b) the payment of liabilities, (c) the receipt of the deficiency (from the appropriate partner), and (d) the distribution of cash. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers (balance deficiencies, payments, cash distributions, divisions of loss), use a minus sign. If there is no amount to be reported for items (a) - (d), the cell can be left blank. However, in the balance rows, a balance of zero MUST be indicated by entering "0". 2. Assume the partner with the capital deficiency declares bankruptcy and is unable to pay the deficiency. Journalize the entries on Feb. 28 to (a) allocate the partner’s deficiency and (b) distribute the remaining cash. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

William Gerloff, Joshua Chu, and Courtney Jewett
Statement if Liquidation				Capital
Feb 3 - 28	Cash	Other Assets	Liabilities	William	Joshua	Courtney
Balances before Liquidation	4,880	55,940	15,040	19,520	4,080	22,180
Sale of assets and division of Loss	36020	-55940		(9,960)	(4,980)	(4,980)
Balances	40,900	0.00	15,040	9,560	(900)	17,200
Payment of liabilities	-15040		15040
Balances	25,860	0.00	30,080	9,560	(900)	17,200
Receipt of deficiency	900				900
Balances	26,760	0.00	30,080	9,560	0.00	17,200
Distribution of cash	(26,760)			9,560		17,200

Workings
Liabilities amount is the balancing figure
Cash	4,880
Other assets	55,940
Total Assets (1)	60,820
William	19,520
Joshua	4,080
Courtney	22,180
Total Equity (2)	45,780
Other Liabilities (1-2)	15,040
Loss on sale of assets
Book value	55,940
Sale proceeds	36,020
Loss on sale of assets	19,920
Profit sharing ratio (2:1:1)
William (2/4 of 19,920)	9,960
Joshua (1/4 of 19,920)	4,980
Courtney (1/4 of 19,920)	4,980

2. If Joshua is unable to pay his share of deficiency and declares bankruptcy, the loss of $900 will have to be borne by William and Courtney in their profit sharing ratio, the Journal entry will be:

William, Capital Dr	600
Courtney, Capital Dr	300
To Joshua, Capital		900
(To allocate Joshua's deficiency to the other partners in 2:1 ratio)

After this is done, the remaining cash is distributed to William and Courtney as follows:

Cash remaining is the amount left after paying off other Liabilities		25,860
William's capital		9,560
Less: Joshua's deficiency		-600
Balance in William's capital		8,960
Courtney's capital		17,200
Less: Joshua's deficiency		(300)
Balance in Courtney's capital		16,900

Journal entry will be:

William, Capital Dr	8,960
Courtney, Capital Dr	16,900
To Joshua, Capital		25,860
(To distribute remaining cash)