Question

QS 12-9 Liquidation of partnership LO P5 [The following information applies to the questions displayed below.] The Field, Brown & Snow partnership was begun with investments by the partners as follows: Field, $131,250; Brown, $165,000; and Snow, $153,750. The partners decide to liquidate, sharing all losses equally. On May 31, after all assets were sold and all creditors were paid, only $45,000 in partnership cash remained. QS 12-9 Part 1 1. Compute the capital account balance of each partner after the liquidation of assets and payment of creditors. (Losses and negative capital balances, if any, should be entered with a minus sign.) Field Brown Snow Total Initial investments Allocation of gains (losses) Capital balances

Answer 1

Answer :-

1)

	Field	Brown	Snow	Total
Initial investments	$131,250	$165,000	$153,750	$450,000
Allocation of Gains/( Losses )(Note -1)	($135,000)	($135,000)	($135,000)	($405,000)
Capital Balances (Initial Investment - Losses)	($3,750)	$30,000	$18,750	$45,000

Note 1 -

Total Initial Investment of all Partner - $450,000

After all asset were sold and creditors were paid - $45,000 cash were remaining

Total Losses - Initial Investment - Remaining Partnership cash

Total Losses - $450,000 - $45,000

Total Losses - $405,000

Partner decided to share all Losses equally.

Allocation of Losses - $405,000 / 3

Allocation of Losses - $135,000

2)1)Journal entries on May 31 to record (a) the cash payment to cover the deficit

Transaction	General Journal	Debit	Credit
(a)	Cash A/c	$3,750
	To Field Capital A/c		$3,750
	( To record the cash payment to cover the deficit)

Note 2-

It was given in the question that partner with a deficit agrees to pay cash to the partnership to cover the deficit.As Field has deficit in her Capital Balance so it bring Cash to cover it's Deficit.

2)2)Journal entries on May 31 to record (b) the final disbursement of cash to the partners.

Transaction	General Journal	Debit	Credit
(b)	Brown Capital A/c Dr.	$30,000
	Snow Capital A/c Dr.	$18,750
	To Cash A/c (Note -3)		$48,750
	( To record the final disbursement of cash to the partners.)

Note -3 :-

Cash Balance for final disbursement of partner= Remaining cash balance + Cash bring by Field to cover her deficit

Cash Balance for final disbursement of partner= $45,000 + $3,750

Cash Balance for final disbursement of partner= $48,750

3)1)Journal entries (a) to transfer the deficit of any deficient partners to the other partners

Transaction	General Journal	Debit	Credit
(a)	Brown Capital A/c Dr.	$1,875
	Snow Capital A/c Dr.	$1,875
	To Field Capital A/c		$3,750
	(To transfer the deficit of any deficient partners to the other partners )

Note 4 -

As Given in the question that any partner with a deficit is not able to reimburse the partnership.Field Capital has deficit so remaining Partner will cover this deficit with their Capital Balance .

3)2) Journal entries (b) to record the final disbursement of cash to the partners.

Transaction	General Journal	Debit	Credit
(b)	Brown Capital A/c Dr.	$28,125
	Snow Capital A/c Dr.	$16,875
	To Cash A/c		$45,000
	(To record the final disbursement of cash to the partners.)

Note 5 )

Brown Capital Balance	$30,000
Less :- Paid for deficit of Field Capital	$1,875
Brown remaining Capital Balance	$28,125
Snow Capital Balance	$18,750
Less :- Paid for deficit of Field Capital	$1,875
Snow remaining Capital Balance	$16,875