Parsons Company wishes to liquidate the firm by distributing the company’s cash

Question

Parsons Company wishes to liquidate the firm by distributing the company’s cash to the three partners. Prior to the distribution of cash, the company’s balances are: Cash $67,760; Oakley, Capital (Cr.) $51,110; Quaney, Capital (Dr.) $22,080; and Ellis, Capital (Cr.) $38,730. The income ratios of the three partners are 2 : 2 : 6, respectively. Prepare the entry to record the absorption of Quaney’s capital deficiency by the other partners and the distribution of cash to the partners with credit balances.

Explanation / Answer

Firstly Quarry's capital deficiency will be absorbed by the partners with credit balances in their capital ratio I. E.  

To be bored by Oakley = 51110/89840 * 22080 = 12561

To be borned by Ellis = 38730/89840 * 22080 = 9519

Journal Entry to record the absorption of Quarts capital deficiency :

Oakley's capital A/c. Dr 12561

Ellis capital A/c . Dr 9519

To Quaney's capital A/c

Now cash distribution entry to the partners with credit balances : ( in profit sharing ratio)

Oakley's capital A/c Dr. 16940

Elli's capital A/c Dr. 50820

To cash A/c 67760

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