Chapter 12, Problem 6BPSB

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 Equipment is sold for $650,000

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	$ 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

To determine

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

To determine

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

To determine

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