David Wallace, Olena Dunn, and Danny Lin were partners in a commercial architect firm and showed the following account balances as of December 31, 2020: Cash Equipment Accum. Deprec. Equipment Accounts Payable Notes Payable David Wallace, Capital Olena Dunn, Capital Danny Lin, Capital Account balances December 31, 2020 $ 40,300 $ 191,000 $ 102,000 $ 8,300 $ 25,000 $ 44,000 $ 27,000 $ 25,000 Due to several unprofitable periods, the partners decided to liquidate the partnership. The equipment was sold for $69,000 on January 1, 2021. The partners share any profit (loss) in the ratio of 2:1:1 for Wallace, Dunn, and Lin, respectively. Required: 1. Complete the schedule. (Negative answers should be indicated by a minus sign.) Cash Equipment Accum. deprec. Equipment Accounts Pay. Notes Pay. David Wallace, Capital Olena Dunn, Capital Danny Lin, Capital Account balance, December 31, 2020 $40,300 $191,000 $102,000 $8,300 $25,000 $44,000 $27,000 $25,000 Sale of equipment Balance $40,300 $191,000 $102,000 $8,300 $25,000 $44,000 $27,000 $25,000 Payment of Liability Balance $40,300 $191,000 $102,000 $8,300 $25,000 $44,000 $27,000 $25,000 2. Prepare the liquidation entries (sale of equipment, allocation of gain/loss, payment of creditors, final distribution of cash). 1 Record the sale of equipment.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

David Wallace, Olena Dunn, and Danny Lin were partners in a commercial architect firm and showed the following account balances as of December 31, 2020:

	Cash		Equipment	Accum. Deprec. Equipment		Accounts Payable	Notes Payable		David Wallace, Capital	Olena Dunn, Capital		Danny Lin, Capital
Account balances December 31, 2020	$	40,300		$	191,000		$	102,000		$	8,300		$	25,000	$	44,000	$	27,000	$	25,000

Due to several unprofitable periods, the partners decided to liquidate the partnership. The equipment was sold for $69,000 on January 1, 2021. The partners share any profit (loss) in the ratio of 2:1:1 for Wallace, Dunn, and Lin, respectively.

Required:
1. Complete the schedule. (Negative answers should be indicated by a minus sign.)

	Cash	Equipment	Accum. deprec. Equipment	Accounts Pay.	Notes Pay.	David Wallace, Capital	Olena Dunn, Capital	Danny Lin, Capital
Account balance, December 31, 2020	$40,300	$191,000	$102,000	$8,300	$25,000	$44,000	$27,000	$25,000
Sale of equipment
Balance	$40,300	$191,000	$102,000	$8,300	$25,000	$44,000	$27,000	$25,000
Payment of Liability
Balance	$40,300	$191,000	$102,000	$8,300	$25,000	$44,000	$27,000	$25,000

2. Prepare the liquidation entries (sale of equipment, allocation of gain/loss, payment of creditors, final distribution of cash).

1

Record the sale of equipment.
2

Record the distribution of gain/loss on sale of equipment to partners.
3

Record the payment to creditors.
4

Record the distribution of remaining cash to partners.

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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