After the accounts are closed on February 3, 2016, prior to liquidating the part

Question

After the accounts are closed on February 3, 2016, prior to liquidating the partnership, the capital accounts of William Gerloff, Joshua Chu, and Courtney Jewett are $19,180, $4,020, and $22,140, respectively. Cash and noncash assets total $5,600 and $54,240, respectively. Amounts owed to creditors total $14,500. 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 $34,560, the partner with the capital deficiency pays the deficiency to the partnership, and the liabilities are paid.
Required:
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. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers (balance deficiencies, payments, cash distributions, divisions of loss), use a minus sign. If there is no amount to be reported for items (a) - (d), the cell can be left blank. However, in the balance rows, a balance of zero MUST be indicated by entering "0".
2.   Assume the partner with the capital deficiency declares bankruptcy and is unable to pay the deficiency. Journalize the entries on Feb. 28 to (a) allocate the partner’s deficiency and (b) distribute the remaining cash. Refer to the Chart of Accounts for exact wording of account titles.
Chart of Accounts
CHART OF ACCOUNTS
Gerloff, Chu, and Jewett
General Ledger
ASSETS
110   Cash
111   Petty Cash
112   Accounts Receivable
113   Allowance for Doubtful Accounts
114   Interest Receivable
115   Notes Receivable
116   Inventory
117   Supplies
118   Office Supplies
119   Prepaid Insurance
120   Land
123   Building
124   Accumulated Depreciation-Building
125   Equipment
126   Accumulated Depreciation-Equipment
129   Asset Revaluations
133   Patent
LIABILITIES
210   Accounts Payable
211   Salaries Payable
213   Sales Tax Payable
214   Interest Payable
215   Notes Payable
EQUITY
310   William Gerloff, Capital
311   William Gerloff, Drawing
312   Courtney Jewett, Capital
313   Courtney Jewett, Drawing
314   Joshua Chu, Capital
315   Joshua Chu, Drawing
330   Income Summary
REVENUE
410   Sales
610   Interest Revenue
EXPENSES
510   Cost of Merchandise Sold
520   Salary Expense
521   Advertising Expense
522   Depreciation Expense-Building
523   Depreciation Expense-Equipment
526   Repairs Expense
529   Selling Expenses
531   Rent Expense
533   Insurance Expense
534   Supplies Expense
535   Office Supplies Expense
536   Credit Card Expense
537   Cash Short and Over
538   Property Tax Expense
539   Miscellaneous Expense
710   Interest Expense
Labels and Amount Descriptions
Labels  
For Period February 3-28, 2016  
For the Year Ended February 28, 2016  
Amount Descriptions  
Balances after payment of liabilities  
Balances after realization  
Balances before realization  
Capital additions  
Cash distributed to partners  
Final balances  
Less partner withdrawals  
Net income for the year  
Payment of liabilities  
Receipt of deficiency  
Sale of assets and division of loss  
Statement of Partnership Liquidation
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. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers (balance deficiencies, payments, cash distributions, divisions of loss), use a minus sign. If there is no amount to be reported for items (a) - (d), the cell can be left blank. However, in the balance rows, a balance of zero MUST be indicated by entering "0".
Gerloff, Chu, and Jewett
Statement of Partnership Liquidation

(Label)
1

Cash +
Noncash Assets =
Liabilities +
Capital, Gerloff (2/4) +
Capital, Chu (1/4) +
Capital, Jewett (1/4)
2

3

4

5

6

7

8
Balances

9

10

Journal
2. Assume the partner with the capital deficiency declares bankruptcy and is unable to pay the deficiency. Journalize the entries on Feb. 28 to (a) allocate the partner’s deficiency and (b) distribute the remaining cash. Refer to the Chart of Accounts for exact wording of account titles.
PAGE 10
JOURNAL
DATE   DESCRIPTION   POST. REF.   DEBIT   CREDIT
1

2

3

4

5

6

Explanation / Answer

1) Partner with capital deficiency brings in cash: STATEMENT OF LIQUIDATION Non cash Capital Cash (+) assets (=) Creditors (+) William (+) Joshua (+) Courtney Balances before liquidation 5,600 54,240 14,500 19,180 4,020 22,140 Sale of non cash assets and allocation of loss 34560 -54,240 -9,840 -4,920 -4,920 New Balances 40,160 0 14,500 9,340 -900 17,220 Cash brought in by Joshua to make up deficiency 900 900 New Balances 41,060 0 14,500 9,340 0 17,220 Cash paid to creditors -14,500 -14,500 New Balances 26,560 0 0 9,340 0 17,220 Cash distributed to partners -26,560 -9,340 -17,220 Final Balances 0 0 0 0 0 0 2) Partner with capital deficiency declares bankruptcy: STATEMENT OF LIQUIDATION Non cash Capital Cash (+) assets (=) Creditors (+) William (+) Joshua (+) Courtney Balances before liquidation 5,600 54,240 14,500 19,180 4,020 22,140 Sale of non cash assets and allocation of loss 34560 -54,240 -9,840 -4,920 -4,920 New Balances 40,160 0 14,500 9,340 -900 17,220 Deficiency in Joshua's account shared 2:1 by William & Courtney -600 900 -300 New Balances 40,160 0 14,500 8,740 0 16,920 Cash paid to creditors -14,500 -14,500 New Balances 25,660 0 0 8,740 0 16,920 Cash distributed to partners -25,660 -8,740 -16,920 Final Balances 0 0 0 0 0 0 JOURNAL ENTRIES: Debit Credit William Gerloff-Capital 600 Courtney Jewett Capital 300 Joshua Chu-Capital 900 (deficiency in Joshua capital transferred to William and Courtney in the ratio of 2:1) William Gerloff-Capital 8,740 Courtney Jewett-Capital 16,920 Cash 25,660 (final distribution of cash to partners)

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