Question

Problem 12-6A Liquidation of a partnership LO P5

Kendra, Cogley, and Mei share income and loss in a 3:2:1 ratio (in ratio form: Kendra, 3/6; Cogley, 2/6; and Mei, 1/6). The partners have decided to liquidate their partnership. On the day of liquidation, their balance sheet appears as follows.

Balance Sheet
Assets				Liabilities
Cash	$	103,600		Accounts payable	$	252,500
Inventory		536,400		Equity
				Kendra, Capital		77,500
				Cogley, Capital		174,375
				Mei, Capital		135,625
Total assets	$	640,000		Total liabilities and equity	$	640,000

Required:
For each of the following scenarios, complete the schedule allocating the gain or loss on the sale of inventory. Prepare journal entries to record the below transactions. (Do not round intermediate calculations. Enter losses and partner deficits, if any, as negative amounts.)

4. Inventory is sold for $276,600 and partners with deficits do not pay their deficits.

Required 4 Inventory

• Required 4 GJ

Complete the schedule allocating the gain or loss on the sale of inventory $276,600 and partners with deficits do not pay their deficits.

Step 1) Determination of gain (loss) Proceeds from the sale of inventory $276,600 Inventory cost 536,400 Loss on sale $(259,800) Step 2) Allocation of the gain (loss) to the partners and distribution of deficit(s) KENDRA COGLEY MEI Total Initial capital balances $77,500 $174,375 $135,625 $387,500 Allocation of gains (losses) 3 / 6 2 / 6 1 / 6 0 Capital balances after gains (losses) 77,500 174,375 135,625 387,500 Allocation of deficit balance 0 Capital balances after deficit allocation $77,500 $174,375 $135,625 $387,500

Answer 1

The given schedule will be completed as follows:

Step 1) Determination of gain or (loss)
Proceeds from the sale of inventory			276600
Inventory cost			536400
Loss on sale			-259800
Step 2) Allocation of the gain (loss) to the partners and distribution of deficit(s)
		KENDRA		COGLEY		MEI	Total
Initial capital balances		77500		174375		135625	387500
Allocation of gains (losses)	3/6	-129900	2/6	-86600	1/6	-43300	-259800
Capital balances after gains (losses)		-52400		87775		92325	127700
Allocation of deficit balance		52400		-34933		-17467	0
Capital balances after deficit allocation		0		52842		74858	127700

The journal entry to record the allocation of deficit balance will be prepared as follows:

Account Titles	Debit	Credit
Cogley, Capital	34,933
Mei, Capital	17,467
Kendra, Capital		52,400