Lewis, Zapata, and Fowler share equally in net income and net losses. After the

Question

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, $69,870 Cr.; Zapata, $38,540 Cr.; Fowler, $17,510 Dr. Required: What term is applied to the debit balance in Fowlers capital account? What is the amount of cash on hand? On December 31, journalize the transaction that must take place for Lewis and Zapata to receive cash in the liquidation process equal to their capital account balances. Refer to the Chart of Accounts for exact wording of account titles.

Explanation / Answer

Hi At the time of dissolution of a partnership firm, the debit balance of any Partner's Capital Account is referred to as "Capital Deficiency" Thus, the Debit balance of Fowler's Capital Account will be known as Capital Deficiency The amount of cash available in the business would be equal to: Amount Payable to Lewis $69,870.00 Add: Amount Payable to Zapata $38,540.00 Less: Amount payable by Fowler $17,510.00 Cash Balance $90,900.00 The journal entry to be passed for the payment to Lewis & Zapata would be as follows: Debit Credit Explanation Lewis's Capital $69,870.00 Payment to Partner, thus Debit Zapata's Capital $38,540.00 Payment to Partner, thus Debit     Cash $90,900.00 Cash decreasing, thus Credit     Fowler's Capital $17,510.00 Partner paying the deficiency owed by him, thus Credit Hope it clears your doubts :-)

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