Alex and Bess have been in partnership for many years. The partners, who share p

Question

Alex and Bess have been in partnership for many years. The partners, who share profits and losses on a 70:30 basis, respectively, wish to retire and have agreed to liquidate the business. Liquidation expenses are estimated to be $5,500. At the date the partnership ceases operations, the balance sheet is as follows:

Part A: Prepare journal entries for the following transactions:

Distributed safe cash payments to the partners.

Paid $21,600 of the partnership’s liabilities.

Sold noncash assets for $147,000.

Distributed safe cash payments to the partners.

Paid remaining partnership liabilities of $14,400.

Paid $4,100 in liquidation expenses; no further expenses will be incurred.

Distributed remaining cash held by the business to the partners.

Part B: Prepare a final statement of partnership liquidation.

Cash $ 48,000 Liabilities $ 36,000 Noncash assets 135,000 Alex, capital 94,500 Bess, capital 52,500 Total assets $ 183,000 Total liabilities and capital $ 183,000

Explanation / Answer

Journal Entries :

1.Sold noncash assets for $147,000

Cash Account Dr. 147000

To Non Cash Assets A/c 135000

To Profit on Liquidation A/c 12000

( Being Assets sold in profit)

Profit on Liquidation A/c Dr 12000

To Partnership Liquidation Account 12000

(Being Profit Transfered to Partnership Liquidation A/c)

2. Paid $21,600 and $ 14400 of the partnership’s liabilities.

Liabilities Account Dr. 36000

To Cash A/c 36000

(Being Liabilities Paid)

3.Paid $4,100 in liquidation expenses

Partnership Liquidation Expense Dr 4100

To Cash 4100

(Being Liquidation Expenses Paid)

Partnership Liquidation Account Dr 4100

To Partnership Liquidation Expense 4100

(Being Amout Charged from Partnership Liquidation Account )

4. Transfer of Excess Profit in Profit sharing ratio to partners :

Excess Profit on liquidation = 12000-4100 = $7900

Partnership Liquidation A/c Dr 7900

To Alex, capital 5530

To Bess, capital 2370

( Being Excess Profit Distributed)

5. Being Payment Made To Partners equivalent to their capital :

Alex, capital A/c Dr 100030 (94500+5530)

Bess, capital A/c Dr 54870 (52500+2370)

To Cash 154900

( Being Cash Distibuted )

II. Partnership Liquidation Account :

Particulars Debit Credit By Profit on Liquidation 12000 To Expense on Liquidation 4100 To Alex, capital 5530 To Bess, capita 2370 Total 12000 12000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.