Question

Class Work 1 The following events pertain to a partnership formed by Papa Hubert and Wimpy Christie to operate a straw doll making company. 2011 Feb. 14 The partnership was formed. Papa Hubert transferred to the partnership$80,000 cash, land worth $80,000, a building worth $480,000, and a mortgage on the building of $240,000. Wimpy Christie transferred to the partnership $40,000 cash and equipment worth $160,000 Dec.31 During 2011, the partnership earned income of just $84,000. The partnership agreement specifies that income and losses are to be divided by paying salaries of $40,000 to Papa and $60,000 to Wimpy, allowing 8% interest on beginning capital investment, and Dividing any remainder equally. 2012 Jan. 1 To improve the prospects for the company, the partners decided to take in a new partner Bran 'Go Green' McCartney, who had experience in the straw doll making business. Bran invested $156,000 for a 25% interest in the business. A bonus was transferred in equal amounts from Papa and Wimpy capital accounts to Bran capital account. Dec. 31 2013 Jan. 1 During 2012, the company earned income of $87,200. The new partnership agreement specified that income and losses would be divided by paying salaries of $60,000 to Wimpy and $80,000 to Bran (no salary to Papa) allowing 8% interest on beginning capital balances after Bran's admission, and dividing the remainder equally, Because the business could not afford the cost of a new Straw Market the three partners decided to liquidate the partnership. The assets and liabilities of the partnership were: Cash $407,200 Accounts Payable $88,000 Accounts Receivable(net) $ 68,000 Mortgage Payable $224,000 Land $ 80,000 Papa, Capital 102, Building(net) $448,000 Wimpy, Capital ? Equipment(net) $236,000 Bran, Capital The equipment was sold for $200,000 and the loss distributed equally to the partners. The accounts payable were paid. A statement of liquidation was prepared, and the remaining assets and liabilities were distributed. Papa agreed to accept cash plus the land and building at book value and the mortgage payable as payment for his share. Wimpy accepted cash and accounts receivable for his share. Bran was paid in cash. Required: Prepare journal entries to record all the facts above. Show computations & schedules, and prepare a statement of liquidation in connection with the Jan 1, 2013 entries.

Answer 1

Journal Entry For the Year 2011.

Date	Description	Debit	Credit
Feb 14	Cash A/c....................Dr	$80,000
	Land A/c....................Dr	$80,000
	Building A/c................Dr	$480,000
	To Papa Capital A/c		$400,000
	To Mortgage on Building account		$240,000
	(Being Capital Contribution made by Papa)
Feb 14	Cash A/c.....................Dr	$40,000
	Equipment	$60,000
	To Wimpy's Capital A/c		$100,000
	(Being Capital Contribution made by Wimpy)
Dec 31	Salary A/c................Dr	$100,000
	To Salary payable		$100,000
	(Being salary payable to partner as per agreement)
Dec 31	Salary Payable A/c................Dr	$100,000
	Papa Current A/c.		$40,000
	Wimpy Current A/c		$60,000
	(Being Salary Paid to partners)
Dec31	Interest A/c.........Dr	$40,000
	To Interest Payable		$40,000
	(Being Interest Payable to Partners @8% On opening capital Balance)
Dec31	Interest Payable A/c.............Dr	$40,000
	To Papa Current A/c		$32000
	To Wimpy Current A/c		$8000
	(Being Interest Paid)
Dec 31	Income statement A/c.........Dr	$140,000
	To Salary		$100,000
	To Interest		$40,000
	(Being Interest and salary transfer to Income statement)
Dec 31	Papa Current A//c	$28000
	Wimpy Current A/c	$28000
	To Income statement A/c		$54000
	(Being Loss after salary and interest apportioned in equal Proportion)

Journal Entries for 2012

Date	Description	Debit	Credit
Jan 1	Cash A/c...................Dr	$156,000
	To Bran Capital Account		$156,000
	(Being Bran entered into partnership)
Dec 31	Salary A/c..........Dr	$140,000
	To Wimpy Current A/c		$60,000
	To Bran Current A/c		$80,000
	(Being Salary Paid to as per partnership agreement)
Dec 31	Interest A/c.................Dr	$52,480
	To Papa Current A/c		$32000
	To Wimpy Current A/c		$8000
	To Bran Current A/c		$12,480
	(Being Interest Paid to partners @8%)
Dec 31	Income Statement A/c.............Dr	$192,480
	To Salary		$140,000
	To Interest		$52,480
	(Interest and salary transfer to Income statement)
Dec 31	Papa Current A/c	$35093
	Wimpy Current A/c	$35093
	Bran Current A/c	$35093
	To Income Statement		$105,280
	(Being Loss debited to partners current account in the equal proportion)

Description	2011	2012
Income before salary and interest	$84000	$87,200
Less:Salary	$100,000	$140,000
Less:Interest	$40,000	$52,480
Loss to be distributed among Partners	$54,000	$105,280

Statement of Liquidation.

Realization	Amount	Distribution		Amount
Cash	$407,200	Accounts payable paid		$88,000
Equipment Sold	$200,000	Papa		$400,000
Land	$80,000	Land	$80000
Building	$448,000	Building	$448000
Account Receivable	$68,000	Mortgage	($224000)
		Cash	$96000
		Wimpy		$100,000
		Account Receivable	$68,000
		Cash	$32000
		Bran
		Cash	$150,000	$150,000
		Current account Balance		$171201
		Papa	$40907
		Wispy	$72907
		Bran	$57387
		Balance distributed equally		$225,999
		Papa	$75,333
		Wispy	$75,333
		Bran	$75,333
Total	$1135,200	Total		$1135,200