Question

1. River Song sells the noncash assets
1. A total of $55,000 was received from converting nonCash assets into Cash.
(accounts receivable, inventory, and equipment)
for $55,000. The book value of these assets is $74,000
($25,000 - $1,000 + $34,500 + $21,000 - $5,500).
Thus, River Song realizes a Loss of $19,000 on the sale.
The entry is above:
NonCash Assets (net).................... $74,000
Sale Proceeds ................................. 55,000
Loss on Sale of nonCash Assets...... $19,000
2. Gain or Loss on realization was allocated to partners.
2. River Song allocates the $19,000 loss on realization to the partners on the basis
of their income ratios, which are 5:3:2. The entry is:
12/31/12	Loss on Realization
	50.0%	A. Mangold Capital		301
	30.0%	S. Otis Capital		301
	20.0%	P. Tyler Capital		301
	(to allocate loss to partners' capital accounts)

RIVER SONG COMPANY Balance Sheet May 31, 2012 Assets Liabilities and Owners' Equity Cash $ 27,500 Notes payable $ 13,500 Accounts receivable 25,000 Accounts payable 27,000 Allowance for doubtful accounts (1,000) Salaries and wages payable 4,000 Inventory 34,500 A. Mangold, capital 33,000 Equipment 21,000 S. Otis, capital 21,000 Accumulated depreciation-equipment (5,500) P. Tyler, capital 3,000 Total $101,500 Total $101,500 The partners share income and loss 5:3:2. During the process of liquidation, the following transactions were completed in the following sequence. 1. A total of $55,000 was received from converting noncash assets into cash. 2. Gain or loss on realization was allocated to partners. 3. Liabilities were paid in full. 4. P. Tyler paid his capital deficiency. 5. Cash was paid to the partners with credit balances. zation Mangold Otis Instructions (a) Prepare the entries to record the transactions. (b) Post to the cash and capital accounts. (c) Assume that Tyler is unable to pay the capital deficiency. (1) Prepare the entry to allocate Tyler's debit balance to Mangold and Otis. (2) Prepare the entry to record the final distribution of cash.

Answer 1

a. Entries to record the transactions: (Grey shaded - Explanation column is only for understanding the calculations)

b. Cash and Capital accounts after posting above transactions:

Dr Dr / Cr Account title Cash Allowance for bad debts Accumulated Deprn-Equipment Loss on sale of noncash assets Accounts Receivable Inventory Equipment (To record sale of non cash assets) Debit 55,000 1,000 5,500 19,000 Credit Explanation As given As given As given |(Total of Credits minus total of debits before this entry) 25,000 As given 34,500 As given 21,000 As given Dr Dr A.Manigold Capital S.Otis Capital P.Tyler Capital Loss on sale of non cash assets (To record loss on sale of non cash assets in ratio 5:3:2) 9,500 5,700 3,800 loss of 19000 / 10*5 (ratio 5:3:2 = 10) loss of 19000 / 10*3(ratio 5:3:2 = 10) loss of 19000 / 10*2 (ratio 5:3:2 = 10) Cr 19,000 Dr Dr Dr Notes Payable Accounts Payable Salaries & Wages Payable Cash (To record payment of liabilities 13,500 27,000 4,000 As given As given As given 44,500 800 Dr Cr Cash P.Tyler's Capital (To record additional capital contributed by Partner on capital deficiency) 800 Opening balance of 3000 minus loss on sale of 3800 Dr Dr Cr 23,500 15,300 Remaining cash balance distributed based on capital balance Remaining cash balance distributed based on capital balance A.Manigold Capital s.Otis Capital Cash (To record final cash distribution to partners based on capital balances) 38,800

c (1) Allocating Tyler's debit balance to Mangold & Otis:

Description Opening Balance Sale of non-cash asset P.Tyler's Additional capital contribution Cash Debit Description 27,500 Payment of liabilities 55,000 A.Manigold Capital 800 s.Otis Capital Credit 44,500 23,500 15,300 83,300 83,300 Description Loss on sale of non-cash asset Balance cash to be distributed Capital Account Debit A.Manigold s.Otis P.Tyler Description 9,500 5,700 3,800 Opening Balance 23,500 15,300 Additional Capital Credit A.Manigold s.Otis 33,000 21,000 P.Tyler 3,000 800 33,000 21,000 3,800 33,000 21,000 3,800

Same journal entries but only BLUE FONT entries are revised in this scenario: (Grey shaded - Explanation column is only for understanding the calculations)

c (2). once above revised entries are posted, cash account and capital account looks like below:

Credit alalala555 Dr / Cr Account title Cash Allowance for bad debts Accumulated Deprn-Equipment Loss on sale of noncash assets Accounts Receivable Inventory Equipment (To record sale of non cash assets) Debit 55,000 1,000 5,500 19,000 Explanation As given As given As given (Total of Credits minus total of debits before this entry) 25,000 As given 34,500 As given 21,000 As given Dr Dr A.Manigold Capital S.Otis Capital P.Tyler Capital Loss on sale of non cash assets (To record loss on sale of non cash assets in ratio 5:3:2) 9,500 5,700 3,800 loss of 19000 / 10*5 (ratio 5:3:2 = 10) loss of 19000 / 10*3 (ratio 5:3:2 = 10) loss of 19000 / 10*2 (ratio 5:3:2 = 10) Cr 19,000 Dr Dr Notes Payable Accounts Payable Salaries & Wages Payable Cash (To record payment of liabilities 13,500 27,000 4,000 As given As given As given Dr Cr 44,500 489 Dr Dr A.Manigold Capital S.Otis Capital 311 800 divided by (33000+21000) multiplied by 33000 800 divided by (33000+21000) multiplied by 21000 P. Tyler's capital deficiency distribution to existing partners based on 800 their capital balances cr P.Tyler's Capital (To record additional capital deficiency of one partner to other existing partners) Dr Dr Cr 23,011 14,989 Remaining cash balance distributed based on capital balance Remaining cash balance distributed based on capital balance A.Manigold Capital S.Otis Capital Cash (To record final cash distribution to partners based on capital balances) 38,000

Credit Description Opening Balance Sale of non-cash asset Cash Debit Description 27,500 Payment of liabilities 55,000 A. Manigold Capital S.Otis Capital 44,500 23,011 14,989 82,500 82,500 Capital Account Debit .Manigold S.Otis P.Tyler Description 9,500 5,700 3,800 Opening Balance 489 | 311 Capital distribution to other partners 23,011 14,989 Credit A.Manigold s.Otis 33,000 21,000 Description Loss on sale of non-cash asset Capital distribution from insolvent partner Balance cash to be distributed P.Tyler 3,000 800 33,000 21,000 3,800 33,000 21,000 3,800