ABC is a partnership owned by Alders, Byron, and Calvin, who share profits and l

Question

ABC is a partnership owned by Alders, Byron, and Calvin, who share profits and losses in the ratio of 1:3:4. The account balances of the partnership at June 30 follow. ABC Adjusted Trial Balance June 30, 2014 Account Title Debit Credit Cash $33,000 Non-Cash Assets $117,000 Notes Payable $32,000 Alders, Capital $22,000 Byron, Capital $50,000 Calvin, Capital $53,000 Alders, Withdrawals $9,000 Bryon, Withdrawals $27,000 Calvin, Withdrawals $49,000 Sales Revenue $164,000 Salaries Expense $74,000 Rent Expense $12,000 Total $321,000 $321,000 Requirements 2. Open each partner's capital T-accounts with the adjusted balance, post the closing entries to their accounts, and determine each partner's ending capital balance. 3. Prepare the June 30 entries to liquidate the partnership assuming the non-cash assets are sold for $120,000.

Explanation / Answer

In liquidation, the sale of noncash assets for cash is called realization. Any difference between book value and the
cash proceeds is called the gain or loss on realization. To liquidate a partnership, it is necessary to:
1. Sell noncash assets for cash and recognize a gain or loss on realization.
2. Allocate gain/loss on realization to the partners based on their income ratios.
3. Pay partnership liabilities in cash.
4. Distribute remaining cash to partners on the basis of their capital balances.
Each of the steps must be performed in sequence. The partnership must pay creditors before partners receive any
cash distributions. Also, an accounting entry must record each step.

-----------------------------------------------working/entries/impacts-------------------

Gain on Sale of non cash items:

120000-117000= 3000, to be distributed as under and credited to respective partners account (Non cash item):

Alders : 3000 x 1/8= 375

Bryon : 3000 x 3/8 =1125

Calvin : 3000 x 4/8 = 1500

Sale for 120,000 is cash inflow impact

1. Entry for Notes payable to Alders :

Notes Payable Dr $32000

To Cash Cr $32000

Its a cash outflow impact

Entries for :

Sales Revenue $164,000 Salaries Expense $74,000 Rent Expense $12,000 Total $321,000

So net profit /(Loss) from these transactions : Total revenue $164,000 - Total Cost $ 321,000 = (-157,000)

This will be distributed between partners as under :

This has got cash out flow impact towards Salary $74,000 and rent $12000 totalling to $86,000

Remaing cash in hand :

Opening $33000+ Sale from non cash item $120,000 - Notes payable ($32,000) - Cash paid towardssalaey & rent $86,000 = $35,000.

This will be distributed to the partners at the balance of capitals lying in their account immediate before the cash distrubution.

It appers Balance sheet is not tallying i.e asset and liabilities are not equals. So I am leaving this answer at this point. The remaining balance of should have been same as capital balance before cash distribution.

Capital Account:

-78000

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