
Concept explainers
Concept Introduction:
Liquidation of
- Sale of non cash assets and realization of cash.
- Sharing the gain or loss on sale of non cash assets amongst the partners in their income sharing ratio.
- Disbursement of liabilities of partnership using the available cash.
- Distribution of balances cash amongst the partners in their capital ratio.
Requirement-1:
To prepare:

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 | $ 650,000 | ||
Gain on Sale | $ 32,800 | ||
Equipment | $ 617,200 | ||
(Being Equipment sold for cash) | |||
(b) | Allocation of Gain or loss: | ||
Gain on Sale | $ 32,800 | ||
Lasu's Capital | $ 13,120 | ||
Ramirez's Capital | $ 6,560 | ||
Toney's Capital | $ 13,120 | ||
(Being Gain shared by partners in the income sharing ratio) | |||
(c) | Payment of Liabilities at book value: | ||
Accounts Payable | $ 342,600 | ||
Cash | $ 342,600 | ||
(being liabilities paid at their book value) | |||
(d) | Distribution of cash: | ||
Lasu's Capital | $ 313,520 | ||
Ramirez's Capital | $ 202,360 | ||
Toney's Capital | $ 140,120 | ||
Cash | $ 656,000 | ||
(Being Cash distributed to partners) |
Working Note: The distribution of cash is calculated as follows:
Lasu | Ramirez | Toney | Total | |
Cash | $ 348,600 | |||
Add: Sale of Equipment | $ 650,000 | |||
Less: Payment of Liabilities | $ (342,600) | |||
Net Cash Available | $ 656,000 | |||
Partner's Capital | $ 300,400 | $ 195,800 | $ 127,000 | $ 623,200 |
Add: Gain on Sale (Shared in the Ratio 2:1:2) | $ 13,120 | $ 6,560 | $ 13,120 | $ 32,800 |
Capital Balance/ (Deficit) | $ 313,520 | $ 202,360 | $ 140,120 | $ 656,000 |
Distribution of Cash | $ 313,520 | $ 202,360 | $ 140,120 | $ 656,000 |
Requirement-2:
To prepare: Journal entries for liquidation of partnership when Equipment is sold for $530,000

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 | $ 530,000 | ||
Loss on Sale | $ 87,200 | ||
Equipment | $ 617,200 | ||
(Being Equipment sold for cash) | |||
(b) | Allocation of Gain or loss: | ||
Lasu's Capital | $ 34,880 | ||
Ramirez's Capital | $ 17,440 | ||
Toney's Capital | $ 34,880 | ||
Loss on Sale | $ 87,200 | ||
(Being loss shared by partners in the income sharing ratio) | |||
(c) | Payment of Liabilities at book value: | ||
Accounts Payable | $ 342,600 | ||
Cash | $ 342,600 | ||
(being liabilities paid at their book value) | |||
(d) | Distribution of cash: | ||
Lasu's Capital | $ 265,520 | ||
Ramirez's Capital | $ 178,360 | ||
Toney's Capital | $ 92,120 | ||
Cash | $ 536,000 | ||
(Being Cash distributed to partners) |
Working Note: The distribution of cash is calculated as follows:
Lasu | Ramirez | Toney | Total | |
Cash | $ 348,600 | |||
Add: Sale of Equipment | $ 530,000 | |||
Less: Payment of Liabilities | $ (342,600) | |||
Net Cash Available | $ 536,000 | |||
Partner's Capital | $ 300,400 | $ 195,800 | $ 127,000 | $ 623,200 |
Less: Loss on Sale (Shared in the Ratio 2:1:2) | $ (34,880) | $ (17,440) | $ (34,880) | $ (87,200) |
Capital Balance/ (Deficit) | $ 265,520 | $ 178,360 | $ 92,120 | $ 536,000 |
Distribution of Cash | $ 265,520 | $ 178,360 | $ 92,120 | $ 536,000 |
Requirement-3:
To prepare: Journal entries for liquidation of partnership when Equipment is sold for $200,000 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 | $ 200,000 | ||
Loss on Sale | $ 417,200 | ||
Equipment | $ 617,200 | ||
(Being Equipment sold for cash) | |||
(b) | Allocation of Gain or loss: | ||
Lasu's Capital | $ 166,880 | ||
Ramirez's Capital | $ 83,440 | ||
Toney's Capital | $ 166,880 | ||
Loss on Sale | $ 417,200 | ||
(Being loss shared by partners in the income sharing ratio) | |||
(c) | Payment of Liabilities at book value: | ||
Accounts Payable | $ 342,600 | ||
Cash | $ 342,600 | ||
(being liabilities paid at their book value) | |||
(d) | Distribution of cash: | ||
Lasu's Capital | $ 133,520 | ||
Ramirez's Capital | $ 112,360 | ||
Toney's Capital | $ 39,880 | ||
Cash | $ 206,000 | ||
(Being Cash distributed to partners) |
Working Note: The distribution of cash is calculated as follows:
Lasu | Ramirez | Toney | Total | |
Cash | $ 348,600 | |||
Add: Sale of Equipment | $ 200,000 | |||
Less: Payment of Liabilities | $ (342,600) | |||
Net Cash Available | $ 206,000 | |||
Partner's Capital | $ 300,400 | $ 195,800 | $ 127,000 | $ 623,200 |
Less: Loss on Sale (Shared in the Ratio 2:1:2) | $ (166,880) | $ (83,440) | $ (166,880) | $ (417,200) |
Capital Balance/ (Deficit) | $ 133,520 | $ 112,360 | $ (39,880) | $ 206,000 |
Distribution of Cash | $ 133,520 | $ 112,360 | $ (39,880) | $ 206,000 |
Requirement-4:
To prepare: Journal entries for liquidation of partnership when Equipment is sold for $150,000 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 | $ 150,000 | ||
Loss on Sale | $ 467,200 | ||
Equipment | $ 617,200 | ||
(Being Equipment sold for cash) | |||
(b) | Allocation of Gain or loss: | ||
Lasu's Capital | $ 186,880 | ||
Ramirez's Capital | $ 93,440 | ||
Toney's Capital | $ 186,880 | ||
Loss on Sale | $ 467,200 | ||
(Being loss shared by partners in the income sharing ratio) | |||
(c) | Payment of Liabilities at book value: | ||
Accounts Payable | $ 342,600 | ||
Cash | $ 342,600 | ||
(being liabilities paid at their book value) | |||
(d) | Distribution of cash: | ||
Lasu's Capital | $ 73,600 | ||
Ramirez's Capital | $ 82,400 | ||
Cash | $ 156,000 | ||
(Being Cash distributed to partners) |
Working Note: The distribution of cash is calculated as follows:
Lasu | Ramirez | Toney | Total | |
Cash | $ 348,600 | |||
Add: Sale of Equipment | $ 150,000 | |||
Less: Payment of Liabilities | $ (342,600) | |||
Net Cash Available | $ 156,000 | |||
Partner's Capital | $ 300,400 | $ 195,800 | $ 127,000 | $ 623,200 |
Less: Loss on Sale (Shared in the Ratio 2:1:2) | $ (186,880) | $ (93,440) | $ (186,880) | $ (467,200) |
Capital Balance/ (Deficit) | $ 113,520 | $ 102,360 | $ (59,880) | $ 156,000 |
Sharing of Deficit of Toney's Capital (In the ratio 2:1) | $ (39,920) | $ (19,960) | $ 59,880 | |
Distribution of Cash | $ 73,600 | $ 82,400 | $ - | $ 156,000 |
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