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 $7,500. At the date the partnership ceases operations, the balance sheet is as follows:

Cash $ 67,000 Liabilities $ 48,500
Noncash assets 260,000 Alex, capital 182,000
Bess, capital 96,500
Total assets $ 327,000 Total liabilities and capital $ 327,000

Part A: Prepare journal entries for the following transactions:

Distributed safe cash payments to the partners.
Paid $29,100 of the partnership’s liabilities.
Sold noncash assets for $278,500.
Distributed safe cash payments to the partners.
Paid remaining partnership liabilities of $19,400.
Paid $5,900 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.

Explanation / Answer

Part A

Computation of Safe cash payment
Estimated cash after setting of creditors and liquidation Expenses =  67,000 - 48,500 - 7,500 = 11000

JOURNALS

Available cash

beginning balance =  67,000
Less ; safe payments to Bess = 11000
Less liabilities paid = 29100
Add relisation on sale of assets = 278500
Balance in cash = 305400

Computation of Safe cash payment

Estimated cash after setting of creditors and liquidation Expensesn = 305400 - (48,500 - 29,100) - 7500 = 278500

safe payment will be in proportion of capital

Alex = 278500 x 194950/286000

Bess = 278500 x 91050/286000

  

JOURNALS

liquidation exp will be distributed based on updated capital ratio

[For details See part B]

Cash Available for finanl distribution

Balance carry forward = 305400
Less Capital payments = 278500
Less Liabilities = 19400
Less Liquidition Exp = 5900
Net = 1600

Cash distribution will be based on updated capital ratio

Part B

Particulars Possible loss Alex Bess Capital 182,000 96,500 Assumed Losses (Noncash assets) 260000 (182000) (78000) Sub total 0 18500 Safe payments 0 11000

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