Question

Trish Craig and Ted Smith have a bio-energy and consulting business and share profit and losses in a 3:1 ratio. They decide to liquidate their partnership on December 31, 2020, when the balance sheet shows the following: Craig and Smith Consulting Balance Sheet December 31, 2020 Assets Cash $ 92,500 $517,500 200, 500 317, eee $409,500 Property, plant and equipment Less: Accumulated depreciation Total assets Liabilities Accounts payable Equity Trish Craig, capital Ted Smith, capital Total equity Total liabilities and equity $ 51,700 $ 246,100 111,700 357,899 $ 489,500 Required: Prepare the entries on December 31, 2020, to record the liquidation under each of the following independent assumptions:

a. Property, plant, and equipment are sold for $723,900.

• Record the sale of property, plant and equipment.

b. Property, plant, and equipment are sold for $141,300.

• Record the sale of property, plant and equipment.

Answer 1

a)

Date	Account title	Debit	credit
1	Cash	723900
	Accumulated depreciation	200500
	Property plant and equipment		517500
	Gain on sale of property plant and equipment		406900
2	Gain on sale of property plant and equipment	406900
	Trish Craig capital		305175
	Ted smith capital		101725
	[To allocate gain on sale]
3	Accounts payable	51700
	cash		51700
4	Trish Craig capital	551275
	Ted smith capital	213425
	Cash		764700
	[Distribution of remaining cash to partners]

#Allocation of gain in 3:1 or 3+1 =4 to

Trish :406900*3/4 = 305175

Ted :406900*1/4 = 101725

##

Capital Balance after allocation of Gain :

Trish :246100+305175 =551275

Ted :111700+101725=213425

B)

Date	Account title	Debit	credit
1	Cash	141300
	Accumulated depreciation	200500
	loss on sale of property plant and equipment (residual figure)	175700
	Property plant and equipment		517500
2	Trish Craig capital	131775
	Ted smith capital	43925
	loss on sale of property plant and equipment		175700
	[To allocate loss on sale]
3	Accounts payable	51700
	cash		51700
4	Trish Craig capital	114325
	Ted smith capital	67775
	Cash		182100

#Allocation of loss in 3:1 or 3+1 =4 to

Trish :175700*3/4 = 131775

Ted :175700*1/4 = 43925

##

Capital Balance after allocation of Gain :

Trish :246100- 131775 = 114325

Ted :111700- 43925 = 67775