Question

Alex and Bess have been in partnership for many years. The partners, who share profits and losses on a 60: 40 basis, respectively, wish to retire and have agreed to liquidate the business. Liquidation expenses are estimated to be $6,500. At the date the partnership ceases operations, the balance sheet is as follows:

Part A: Prepare journal entries for the following transactions:

a. Distributed safe cash payments to the partners.

b. Paid $24,900 of the partnership's liabilities.

c. Sold noncash assets for $131,500.

d. Distributed safe cash payments to the partners.

e. Pald remaining partnership liabilities of $16,600.

f. Paid $5,200 in liquidation expenses; no further expenses will be incurred.

g. Distributed remaining cash held by the business to the partners.

Part B: Prepare a final statement of partnership liquidation.

Answer 1

1.Sold non cash assets for $147,000

Cash Account Dr. $131,500

To Non Cash Assets A/c 120,000

To Profit on Liquidation A/c 11,500

( Being Assets sold in profit)

Profit on Liquidation A/c Dr 11,500

To Partnership Liquidation Account 11500

(Being Profit Transfered to Partnership Liquidation A/c)

2. Paid $24,900 and $ 16600 of the partnership’s liabilities.

Liabilities Account Dr. 41,500

To Cash A/c 41,500

(Being Liabilities Paid)

3.Paid $5200 in liquidation expenses

Partnership Liquidation Expense Dr 5200

To Cash 5200

(Being Liquidation Expenses Paid)

Partnership Liquidation Account Dr 5200

To Partnership Liquidation Expense 5200

(Being Amount Charged from Partnership Liquidation Account )

4. Transfer of Excess Profit in Profit sharing ratio to partners :

Excess Profit on liquidation = 11500-5200 = $6300

Partnership Liquidation A/c Dr 6300

To Alex, capital 3780

To Bess, capital 2520

( Being Excess Profit Distributed)

5. Being Payment Made To Partners equivalent to their capital :

Alex, capital A/c Dr 75780 (72,000+3780)

Bess, capital A/c Dr 62020 (59500+2520)

To Cash 137800

( Being Cash Distributed )

II. Partnership Liquidation Account :

Particulars		Debit	Credit
By Profit on Liquidation			11500
To Expense on Liquidation		5200
To Alex, capital		3780
To Bess, capita1		2520
Total		$11,500	$11,500