PR 12-5A Statement of partnership liquidation

After the accounts are closed on February 3, 2014, prior to liquidating the partnership, the capital accounts of William Gerloff, Joshua Chu, and Courtney Jewett are $19,300, $4,500, and $22,300, respectively. Cash and noncash assets total $5,200 and $55,900, respectively. Amounts owed to creditors total $15,000. The partners share income and losses in the ratio of 2:1:1. Between February 3 and February 28, the noncash assets are sold for $34,300, the partner with the capital deficiency pays the deficiency to the partnership, and the liabilities are paid.

Instructions
1. Prepare a statement of partnership liquidation, indicating (a) the sale of assets and division of loss, (b) the payment of liabilities, (c) the receipt of the deficiency (from the appropriate partner), and (d) the distribution of cash.
2. Assume the partner with the capital deficiency declares bankruptcy and is unable to pay the deficiency. Journalize the entries to (a) allocate the partner’s deficiency and (b) distribute the remaining cash.


Answer:

1. GERLOFF, CHU, AND JEWETT
Statement of Partnership Liquidation
For Period February 3–28, 2014
Noncash
Capital
Gerloff Chu Jewett
Cash + Assets = Liabilities + (2/4) + (1/4) + (1/4)
Balances before realization $ 5,200 $55,900 $15,000 $19,300 $4,500 $22,300
a.
 Sale of assets and division of loss +34,300 –55,900 — –10,800 –5,400 –5,400
Balances after realization $39,500 $ 0 $15,000 $ 8,500 $ (900) $16,900
b.
 Payment of liabilities –15,000 — –15,000 — — —
Balances after payment of liabilities $24,500 $ 0 $ 0 $ 8,500 $ (900) $16,900
c.
 Receipt of deficiency +900 — — — +900 —
Balances $25,400 $ 0 $ 0 $ 8,500 $ 0 $16,900
d.
 Cash distributed to partners –25,400 — — –8,500 — –16,900
Final balances $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

2 a. William Gerloff, Capital 600
Courtney Jewett, Capital 300
Joshua Chu, Capital 900
The $900 deficiency of Chu would be divided between the other partners, Gerloff and Jewett, in their
income-sharing ratio (2:1, respectively). Therefore, Gerloff would absorb 2/3 of the $900 deficiency, or
$600, and Jewett would absorb 1/3 of the $900 deficiency, or $300.
b. William Gerloff, Capital* 7,900
Courtney Jewett, Capital** 16,600
Cash 24,500

*$8,500 – $600
**$16,900 – $300