Question

Alex and Bess 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 $9,000. At the date the partnership ceases operations, the balance sheet is as follows:

Cash	$	58,000	Liabilities	$	44,000
Noncash assets		170,000	Alex, capital		102,000
			Bess, capital		82,000
Total assets	$	228,000	Total liabilities and capital	$	228,000

Part A: 

Prepare journal entries for the following transactions:

1. Distributed safe cash payments to the partners.

2. Paid $26,400 of the partnership’s liabilities.

3. Sold noncash assets for $184,000.

4. Distributed safe cash payments to the partners.

5. Paid remaining partnership liabilities of $17,600.

6. Paid $7,200 in liquidation expenses; no further expenses will be incurred.

7. Distributed remaining cash held by the business to the partners.

Part B: 

Prepare a final statement of partnership liquidation.

ALEX AND BESS PARTNERSHIP
Statement of Partnership Liquidation
	Cash	Non-cash Assets	Liabilities	Alex, Capital	Bess, Capital
Beginning balances
Distribution to partners
Paid liabilities
Sold noncash assets
Updated balances
Distribution to partners
Updated balances
Paid liabilities
Paid liquidation expenses
Updated balances
Distribution to partners
Closing balances

Answer 1

Answer to Part A
	Journal entries
		Debit	Credit
1)	Cash	184,000
	To Non cash assets		170,000
	To gain on sales of assets		14,000
	(Being assets sold)
2)	Gain on realization	14,000
	To Alex capital (60%)		8,400
	To Bess capital (40%)		5,600
	(Being gain on realization allocated among partners)
3)	Liabilities	26,400
	To cash		26,400
	(Being liabilities paid off)
4)	Liabilities	17,600
	To cash		17,600
	(Being liabilities paid off)
5)	Liquidation expense	7,200
	To cash		7,200
	(Being Liquidation expense Paid)
6)	Alex capital	4,320
	Bess capital	2,880
	To liquidation expense		7,200
	(Being Liquidation expense allocated to partners in their remaining capital ratio)
7)	Alex capital	106,080
	Bess capital	84,720
	To cash		190,800
	(Being distribution of remaining cash among partners)

Answer to Part B
	Statement of Partnership liquidation
	Cash +	Non cash assets =	Liabilities +	Capital
				Alex (60%)	Bess (40%)
Balances before realization	58000	170000	44000	102000	82000
Sale of assets and division of Profit (Refer W.N -1)	184000	-170000		8400	5600
Balances after realization	242000	0	44000	110400	87600
Payment of Liabilities	-44000		-44000
Balances after payment of liabilities	198000	0	0	110400	87600
Payment of Liquidation expense	-7200			-4320	-2880
Balances after payment of Liquidation expense	190800	0	0	106080	84720
Cash distributed to Partners	-190800			-106080	-84720
Final balances	0	0	0	0	0	0
W.N - 1 ) Profit on realisation of Non cash assets
Book value of Assets	$170,000
Realisation from sale of assets	$184,000
Profit on sale of assets	$14,000