Chapter 12, Problem 5APSA

To determine

Concept Introduction:

Liquidation of Partnership: Liquidation of partnership is the process of selling all the partnership assets and distributing the collection amongst the partners. The liquidation of partnership takes following steps from the point for view of accounting:

1. Sale of non cash assets and realization of cash.
2. Sharing the gain or loss on sale of non cash assets amongst the partners in their income sharing ratio.
3. Disbursement of liabilities of partnership using the available cash.
4. Distribution of balances cash amongst the partners in their capital ratio.

Requirement-1:

To prepare: Journal entries for liquidation of partnership when inventory is sold for $600,000

Explanation of Solution

Journal entries for liquidation of partnership are as follows:

S.No.	Accounts titles and Explanation	Debit	Credit
(a)	Sale of inventory:
	Cash	$ 600,000.00
	Gain on Sale		$ 62,800.00
	Inventory		$ 537,200.00
	(Being inventory sold for cash)
(b)	Allocation of Gain or loss:
	Gain on Sale	$ 62,800.00
	Kendra's Capital		$ 31,400.00
	Cogley's Capital		$ 20,933.33
	Mei's Capital		$ 10,466.67
	(Being gain shared by partners in the income sharing ratio)
(c)	Payment of Liabilities at book value:
	Accounts Payable	$ 245,500.00
	Cash		$ 245,500.00
	(being liabilities paid at their book value)
(d)	Distribution of cash:
	Kendra's Capital	$ 124,400.00
	Cogley's Capital	$ 233,433.33
	Mei's Capital	$ 177,466.67
	Cash		$ 535,300.00
	(Being Cash distributed to partners)

Working Note: The distribution of cash is calculated as follows:

	Kendra	Cogley	Mei	Total
Cash				$ 180,800.00
Add: Sale of Inventory				$ 600,000.00
Less: Payment of Liabilities				$ (245,500.00)
Net Cash Available				$ 535,300.00
Partner's Capital	$ 93,000.00	$ 212,500.00	$ 167,000.00	$ 472,500.00
Add: Gain on Sale (Shared in the Ratio 3:2:1)	$ 31,400.00	$ 20,933.33	$ 10,466.67	$ 62,800.00
Capital Balance/ (Deficit)	$ 124,400.00	$ 233,433.33	$ 177,466.67	$ 535,300.00
Distribution of Cash	$ 124,400.00	$ 233,433.33	$ 177,466.67	$ 535,300.00

To determine

Requirement-2:

To prepare: Journal entries for liquidation of partnership when inventory is sold for $500,000

Explanation of Solution

Journal entries for liquidation of partnership are as follows:

S.No.	Accounts titles and Explanation	Debit	Credit
(a)	Sale of inventory:
	Cash	$ 500,000.00
	Loss on Sale	$ 37,200.00
	Inventory		$ 537,200.00
	(Being inventory sold for cash)
(b)	Allocation of Gain or loss:
	Kendra's Capital	$ 18,600.00
	Cogley's Capital	$ 12,400.00
	Mei's Capital	$ 6,200.00
	Loss on Sale		$ 37,200.00
	(Being loss shared by partners in the income sharing ratio)
(c)	Payment of Liabilities at book value:
	Accounts Payable	$ 245,500.00
	Cash		$ 245,500.00
	(being liabilities paid at their book value)
(d)	Distribution of cash:
	Kendra's Capital	$ 74,400.00
	Cogley's Capital	$ 200,100.00
	Mei's Capital	$ 160,800.00
	Cash		$ 435,300.00
	(Being Cash distributed to partners)

Working Note: The distribution of cash is calculated as follows:

	Kendra	Cogley	Mei	Total
Cash				$ 180,800.00
Add: Sale of Inventory				$ 500,000.00
Less: Payment of Liabilities				$ (245,500.00)
Net Cash Available				$ 435,300.00
Partner's Capital	$ 93,000.00	$ 212,500.00	$ 167,000.00	$ 472,500.00
Less: Loss on Sale (Shared in the Ratio 3:2:1)	$ (18,600.00)	$ (12,400.00)	$ (6,200.00)	$ (37,200.00)
Capital Balance/ (Deficit)	$ 74,400.00	$ 200,100.00	$ 160,800.00	$ 435,300.00
Distribution of Cash	$ 74,400.00	$ 200,100.00	$ 160,800.00	$ 435,300.00

To determine

Requirement-3:

To prepare: Journal entries for liquidation of partnership when inventory is sold for $320,000 and the partner with deficit bring it in cash

Explanation of Solution

Journal entries for liquidation of partnership are as follows:

S.No.	Accounts titles and Explanation	Debit	Credit
(a)	Sale of inventory:
	Cash	$ 320,000.00
	Loss on Sale	$ 217,200.00
	Inventory		$ 537,200.00
	(Being inventory sold for cash)
(b)	Allocation of Gain or loss:
	Kendra's Capital	$ 108,600.00
	Cogley's Capital	$ 72,400.00
	Mei's Capital	$ 36,200.00
	Loss on Sale		$ 217,200.00
	(Being loss shared by partners in the income sharing ratio)
(c)	Payment of Liabilities at book value:
	Accounts Payable	$ 245,500.00
	Cash		$ 245,500.00
	(being liabilities paid at their book value)
(d)	Distribution of cash:
	Cogley's Capital	$ 140,100.00
	Mei's Capital	$ 130,800.00
	Kendra's Capital		$ 15,600.00
	Cash		$ 255,300.00
	(Being Cash distributed to partners)

Working Note: The distribution of cash is calculated as follows:

	Kendra	Cogley	Mei	Total
Cash				$ 180,800.00
Add: Sale of Inventory				$ 320,000.00
Less: Payment of Liabilities				$ (245,500.00)
Net Cash Available				$ 255,300.00
Partner's Capital	$ 93,000.00	$ 212,500.00	$ 167,000.00	$ 472,500.00
Less: Loss on Sale (Shared in the Ratio 3:2:1)	$ (108,600.00)	$ (72,400.00)	$ (36,200.00)	$ (217,200.00)
Capital Balance/ (Deficit)	$ (15,600.00)	$ 140,100.00	$ 130,800.00	$ 255,300.00
Distribution of Cash	$ (15,600.00)	$ 140,100.00	$ 130,800.00	$ 255,300.00

To determine

Requirement-4:

To prepare: Journal entries for liquidation of partnership when inventory is sold for $320,000 and the partner with deficit bring it in cash

Explanation of Solution

Journal entries for liquidation of partnership are as follows:

S.No.	Accounts titles and Explanation	Debit	Credit
(a)	Sale of inventory:
	Cash	$ 250,000.00
	Loss on Sale	$ 287,200.00
	Inventory		$ 537,200.00
	(Being inventory sold for cash)
(b)	Allocation of Gain or loss:
	Kendra's Capital	$ 143,600.00
	Cogley's Capital	$ 95,733.33
	Mei's Capital	$ 47,866.67
	Loss on Sale		$ 287,200.00
	(Being loss shared by partners in the income sharing ratio)
(c)	Payment of Liabilities at book value:
	Accounts Payable	$ 245,500.00
	Cash		$ 245,500.00
	(being liabilities paid at their book value)
(d)	Distribution of cash:
	Cogley's Capital	$ 83,033.33
	Mei's Capital	$ 102,266.67
	Cash		$ 185,300.00
	(Being Cash distributed to partners)

Working Note: The distribution of cash is calculated as follows:

	Kendra	Cogley	Mei	Total
Cash				$ 180,800.00
Add: Sale of Inventory				$ 250,000.00
Less: Payment of Liabilities				$ (245,500.00)
Net Cash Available				$ 185,300.00
Partner's Capital	$ 93,000.00	$ 212,500.00	$ 167,000.00	$ 472,500.00
Less: Loss on Sale (Shared in the Ratio 3:2:1)	$ (143,600.00)	$ (95,733.33)	$ (47,866.67)	$ (287,200.00)
Capital Balance/ (Deficit)	$ (50,600.00)	$ 116,766.67	$ 119,133.33	$ 185,300.00
Sharing of Deficit pf Kendra's Capital (In the ratio 2:1)	$ 50,600.00	$ (33,733.33)	$ (16,866.67)
Distribution of Cash	$ -	$ 83,033.33	$ 102,266.67	$ 185,300.00