Question

Problem 1 The following balance sheet extract of the partnership firm of Small, Medium and Large has been prepared just before they decided to liquidate their firm on June 30, 2019. Cash 60,000 Accounts receivable 40,000 Other non-cash assets 300,000 Accounts payable 120,000 Small, capital 85.000 Medium capital 95.000 Large, capital 100,000 The partners have been distributing profits and losses in the ratio of 2:2:1 respectively between Small, Medium and Large. The following transactions took place during the process of liquidation. a. The accounts receivable recovered S35,000 b. Other non-cash assets were sold for $120,000 c. The liabilities were paid in full. d. All the partners were solvent and deficiencies, if any, were paid to the partnership in cash. The balance was shared between the partners. Required: A. Prepare a statement of liquidation for the firm. B. Show the required journal entries to give effect to the above tranactions.

Answer 1

E A B С D E G H STATEMENT OF LIQUIDATION Capital A/C Other non A/C Cash receivable cash assets payable Small Medium Large Opening Balance 60000 40000 300000 120000 85000 95000 100000 Sales of accouts receivable 35000 -40000 Sale of other non cash assets 120000 -300000 Allocation of loss (185000) -74000 - 74000 -37000 Payment of A/c Payable -120000 -120000 Balance 95000 0 0 0 11000 21000 63000 Allocation of Cash -95000 38000 38000 19000 Balances 0 0 0 0 49000 59000 82000 1 2 Journal 8 Cash 155000 Small, capital 38000 Small, capital 74000 Medium, capital 38000 5 Medium, capital 74000 Large, capital 19000 5 Large, capital 37000 Cash 95000 7 Accounts receivable 40000 (Being balance cash distributed to partners) 3 Other non cash assets 300000 (Being assets sold and loss divided among partners) 120000 1 Accounts payable 2 Cash 3 (Being Liabilities paid in full) 120000