EX 12-21 Liquidating partnerships—capital deficiency

Lewis, Zapata, and Fowler share equally in net income and net losses. After the partnership sells all assets for cash, divides the losses on realization, and pays the liabilities, the balances in the capital accounts are as follows: Lewis, $73,500 Cr.; Zapata, $41,000 Cr.; Fowler, $17,000 Dr.

a. What term is applied to the debit balance in Fowler’s capital account?
b. What is the amount of cash on hand?
c. Journalize the transaction that must take place for Lewis and Zapata to receive cash in the liquidation process equal to their capital account balances.


Answer:

a. Deficiency
b. $97,500 ($73,500 + $41,000 – $17,000)
c. Cash 17,000
Fowler, Capital 17,000

Support for entry: Lewis Zapata Fowler
Capital balances after realization……… $73,500 $41,000 $(17,000)
Receipt of partner deficiency…………… 17,000
Capital balances after eliminating
deficiency…………………………………… $73,500 $41,000 $ 0