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 $19,680, $4,960, and $21,840, respectively. Cash and noncash assets total $5,100 and $56,140, respectively. Amounts owed to creditors total $14,760. 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 $32,700, 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.

Chart of Accounts

CHART OF ACCOUNTS
Gerloff, Chu, and Jewett
General Ledger
ASSETS 110 Cash 111 Petty Cash 112 Accounts Receivable 113 Allowance for Doubtful Accounts 114 Interest Receivable 115 Notes Receivable 116 Inventory 117 Supplies 118 Office Supplies 119 Prepaid Insurance 120 Land 123 Building 124 Accumulated Depreciation-Building 125 Equipment 126 Accumulated Depreciation-Equipment 129 Asset Revaluations 133 Patent LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 310 William Gerloff, Capital 311 William Gerloff, Drawing 312 Courtney Jewett, Capital 313 Courtney Jewett, Drawing 314 Joshua Chu, Capital 315 Joshua Chu, Drawing 330 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Merchandise Sold 520 Salary Expense 521 Advertising Expense 522 Depreciation Expense-Building 523 Depreciation Expense-Equipment 526 Repairs Expense 529 Selling Expenses 531 Rent Expense 533 Insurance Expense 534 Supplies Expense 535 Office Supplies Expense 536 Credit Card Expense 537 Cash Short and Over 538 Property Tax Expense 539 Miscellaneous Expense 710 Interest Expense

Labels and Amount Descriptions

Labels
For Period February 3-28, 2016
For the Year Ended February 28, 2016
Amount Descriptions
Balances after payment of liabilities
Balances after realization
Balances before realization
Capital additions
Cash distributed to partners
Final balances
Less partner withdrawals
Net income for the year
Payment of liabilities
Receipt of deficiency
Sale of assets and division of loss

Statement of Partnership Liquidation

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".

Gerloff, Chu, and Jewett

Statement of Partnership Liquidation

1		Cash +	Noncash Assets =	Liabilities +	Capital, Gerloff (2/4) +	Capital, Chu (1/4) +	Capital, Jewett (1/4)
2
3
4
5
6
7
8	Balances
9
10

Journal

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.

PAGE 10

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6

Answer 1

Solution 1:

Gerloff, Chu & Jewett - Statement of Partnership Liquidation
Particulars	Cash +	Non Cash Assets =	Liabilities +	Partner's Capital
				Gerloff (2/4)	Chu (1/4)	Jewett (1/4)
Opening Balance	$5,100.00	$56,140.00	$14,760.00	$19,680.00	$4,960.00	$21,840.00
Sales of Other Assets	$32,700.00	-$32,700.00
Allocation of loss ($23,440) (2:1:1)		-$23,440.00		-$11,720.00	-$5,860.00	-$5,860.00
Balances	$37,800.00	$0.00	$14,760.00	$7,960.00	-$900.00	$15,980.00
Payment of Liabilities	-$14,760.00		-$14,760.00
Balances	$23,040.00	$0.00	$0.00	$7,960.00	-$900.00	$15,980.00
Cash deficiency from Chu	$900.00				$900.00
Distribution of Cash	-$23,940.00			-$7,960.00		-$15,980.00
Balances	$0.00	$0.00	$0.00	$0.00	$0.00	$0.00

Solution 2:

Journal Entries
Date	Particulars	Debit	Credit
28-Feb	William Gerloff, Capital Dr (900*2/3)	600
	Courtney Jewett, Capital Dr ($900*1/3)	300
	To Joshua Chu, Capital A/c		900
	(Being deficiency in Chu capital compensated by remaining partners)
28-Feb	William Gerloff, Capital Dr	7360
	Courtney Jewett, Capital Dr	15680
	To Cash		23040
	(Being cash distributed to partners on liquidation)