Question

The partnership of Adcock, Villa, and Davis decide to liquidate after all temporary accounts have been closed out and the partnership balance sheet is as follows: Adcock, Villa, Davis &Company Balance Sheet February 2, 2018 Assets Cash Accounts Receivable Inventory Plant Assets (Net of Depreciation) Total Assets 60,000 40,000 100,000 200,000 S 400,000 Liabilities Payable Partners' Equity $120,000 Adcock Capital Villa Capital Davis Capital Total Liabilities & Partner Equity 55,000 125,000 100,000 S400,000 Required: Prepare Journal entries and ledger accounts ("T"- Accounts) for the following activities, allocations of profit/loss, and distribution of cash to each partner on liquidation under the following two assumptions. 1. The following events took place during liquidation: A. Collected $35,000 of accounts receivable, the remaining is uncollectible. B. The inventory was sold for $110,000 cash. C. The plant assets were sold for $90,000. Plant assets have a historical cost of $450,000 and $250,000 of accumulated depreciation Profits and losses are allocated Adcock, Villa, and Davis in a 3:3:4 ratio. 2. In the alternative to #1 above, assume account receivable same as above, the inventory was sold for $40,000 and plant assets are sold for $ 75,000. Also assume, any partner with a deficit capital account does not have personal funds to cover the deficiency.

Answer 1

Answer: When Partnership is dissolved then all the assets are sold and liabilities are to be paid out of sale proceeds and the balance available in the hand of the firm. If any amount required to be paid to outsiders then the partners are personally liable for payment to such outsiders because Firm and partners are the same entity in the eyes of law, i.e firm has no separate existence from its partners

when the firm is dissolved and any partners capital a/c shows the deficiency then such partner is liable to pay such deficit to the firm out of his or her personal assets, so as the treatment is done in option 2 when Mr Adcock has deficiency of $2000 in capital A/c which is contributed by him out of personal assets to the firm.

In normal case of dissolution of firm any loss or profit on dissolution will be shared by all partners in profit sharing ratio.

Thanks .