
Concept explainers
1. a
Prepare statement of
1. a

Answer to Problem 6PA
Partnership: It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.
Liquidation of Partnership: The process of winding up of the partnership firm is called as liquidation of partnership. At the time of liquidation of partnership, loss on realization or gain on realization is determined.
The statement of partnership liquidation of S, W and G is as follows:
S, W, AND G | ||||||
Statement of Partnership Liquidation | ||||||
For the Period November 1–30 | ||||||
Cash + | Non Cash Assets = | Liabilities + | Capital | |||
S (2/5) | W (2/5) | G (1/5) | ||||
Balances before realization | $32,000 | $128,000 | $20,000 | $58,000 | $72,000 | $10,000 |
Sale of assets and division of gain (1) | $156,000 | -$128,000 | $11,200 | $11,200 | $5,600 | |
Balances after realization | $188,000 | $0 | $20,000 | $69,200 | $83,200 | $15,600 |
Payment of liabilities | -$20,000 | -$20,000 | ||||
Balances after payment of liabilities | $168,000 | $0 | $0 | $69,200 | $83,200 | $15,600 |
Cash distributed to partners | $168,000 | -$69,200 | -$83,200 | -$15,600 | ||
Final balances | $0 | $0 | $0 | $0 | $0 | $0 |
Table (1)
Explanation of Solution
Working note 1
Calculation of division of realization Profit among partners:
The following table determines the realization profit.
Sale price of Non cash asset (A) | $ 156,000 |
Book value of Non cash asset (B) | $ 128,000 |
Realization profit (A) – (B) | $ 28,000 |
Table (2)
The
The following table shows the division of profit among partners S, W and G as per their profit and loss sharing ratio.
S | W | G | Total | |
Share of partners in firm | (2/5) | (2/5) | (1/5) | 1 |
Share of realization profit (2:2:1) | $11,200 | $11,200 | $5,600 | $28,000 |
Table (3)
1. b
Prepare statement of partnership liquidation.
1. b

Answer to Problem 6PA
The statement of partnership liquidation of S, W and G is as follows:
S, W, AND G | ||||||
Statement of Partnership Liquidation | ||||||
For the Period November 1–30 | ||||||
Cash + | Non Cash Assets = | Liabilities + | Capital | |||
S (2/5) | W (2/5) | G (1/5) | ||||
Balances before realization | $32,000 | $128,000 | $20,000 | $58,000 | $72,000 | $10,000 |
Sale of assets and division of loss (2) | $55,000 | -$128,000 | -$29,200 | -$29,200 | -$14,600 | |
Balances after realization | $87,000 | $0 | $20,000 | $28,800 | $42,800 | -$4,600 |
Payment of liabilities | -$20,000 | -$20,000 | ||||
Balances after payment of liabilities | $67,000 | $0 | $0 | $28,800 | $42,800 | -$4,600 |
Receipt of deficiency (3) | $4,600 | $4,600 | ||||
Balances | $71,600 | $0 | $0 | $28,800 | $42,800 | $0 |
Cash distributed to partners | -$71,600 | -$28,800 | -$42,800 | |||
Final balances | $0 | $0 | $0 | $0 | $0 | $0 |
Table (4)
Explanation of Solution
Working note 2
Calculation of division of realization Loss among partners:
The following table determines the realization loss.
Sale price of Non cash asset (A) | $ 55,000 |
Book value of Non cash asset (B) | $ 128,000 |
Realization loss (A) – (B) | $ 73,000 |
Table (5)
The profit and loss sharing ratio among partners is 2:2:1
The following table shows the division of loss among partners S, W and G as per their profit and loss sharing ratio.
S | W | G | Total | |
Share of partners in firm | (2/5) | (2/5) | (1/5) | 1 |
Share of realization loss (2:2:1) | $29,200 | $29,200 | $14,600 | $73,000 |
Table (6)
Working note 3
As per the instruction, partner with deficiency will pay the deficiency amount to the partnership. Thus, G has paid $4,600 to the partnership for his deficiency. Therefore G’s capital account is credited or increased with $4,600 and cash is increased with $4,600.
2. a
Record the
2. a

Answer to Problem 6PA
When a partner with capital deficiency declares bankruptcy, his or her capital deficiency balance will be shared between other partners in their income- sharing ratio.
The journal entry to allocate the partner’s deficiency, when the partner with capital deficiency declares bankruptcy is as follows:
Date | Account Titles and Explanation | Debit ($) | Credit ($) | |
S, Capital (4) | $2,300 | |||
W, Capital (5) | $2,300 | |||
G, Capital | $4,600 | |||
(To record the allocation of partner’s capital deficiency.) |
Table (4)
Explanation of Solution
Working Note 4
S and W share income sharing ratio as 2:2 respectively. So,
The share of partner’s capital deficiency absorbed by S:
Working Note 5
The share of partner’s capital deficiency absorbed by W:
2. b
Record the journal entry to distribute the cash among the partners, assuming that the partner with capital deficiency declares bankruptcy.
2. b

Answer to Problem 6PA
The journal entry to distribute the cash among the partners, when the partner with capital deficiency declares bankruptcy is as follows:
Date | Account Titles and Explanation | Debit ($) | Credit ($) | |
S, Capital (6) | $26,500 | |||
W, Capital (7) | $40,500 | |||
Cash | $67,000 | |||
(To record the distribution of cash between the partners.) |
Table (4)
Explanation of Solution
Calculation of cash to be distributed between the partners
Working Note 6
Cash distributed to S:
Working Note 7
Cash distributed to W:
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