The partnership of Wingler, Norris, Rodgers, and Guthrie was formed several year
ID: 2581586 • Letter: T
Question
The partnership of Wingler, Norris, Rodgers, and Guthrie was formed several years ago as a local architectural firm. Several partners have recently undergone personal financial problems and have decided to terminate operations and liquidate the business. The following balance sheet is drawn up as a guideline for this process:
When the liquidation commenced, expenses of $16,000 were anticipated as being necessary to dispose of all property.
The following transactions transpire during the liquidation of the Wingler, Norris, Rodgers, and Guthrie partnership:
Collected 80 percent of the total accounts receivable with the rest judged to be uncollectible.
Learned that Guthrie, who has become personally insolvent, will make no further contributions.
Made final cash disbursements to the partners based on the assumption that all partners other than Guthrie are personally solvent.
Prepare journal entries to record these liquidation transactions
1.Record the cash received from accounts receivable and loss allocated to partners.
2. Record the cash received from land and loss allocated to partners.
3. Record the entry for initial distribution of cash as per predistribution plan.
4. Record Guthrie's insolvency.
5. Record the settlement of all liabilities.
6. Record the cash received from inventory and loss allocated to partners.
7. Record the distribution of cash as per predistribution plan.
8. Record the cash paid for liquidation expenses.
9. Record the remaining cash distributed based on final capital balances.
10. Record the distribute remaining cash based on final capital balances.
Part AThe partnership of Wingler, Norris, Rodgers, and Guthrie was formed several years ago as a local architectural firm. Several partners have recently undergone personal financial problems and have decided to terminate operations and liquidate the business. The following balance sheet is drawn up as a guideline for this process:
Explanation / Answer
1.
a) Cash will be debited as cash came in. As we have collected only 80%of the amount hence the loss incurred will be debited and we will reverse the accounts receivable standing in the debit side of balance sheet therefore that will be credited.
Bank/Cash A/c Dr. 65,600
Loss on collection A/c Dr. 16,400
To Accounts Receivable A/c 82,000
(Being cash collected and loss booked)
b) The partners will bear the loss from their capital accounts hence their capital account will be debited and loss will be credited.
Wingler A/c Dr. 4,920
Norris A/c Dr. 1,640
Rodgers A/c Dr. 3,280
Guthrie A/c Dr. 6,560
To Loss on Collection A/c 16,400
(Being loss distributed to partners)
2. Land and building sold means the asset goes out hence it will be credited (Remember : Credit what goes out for Real accounts). Cash came in and that will be debited and loss will be booked.
Cash A/c Dr. 150,000
Loss on sale of Building and equipment A/c Dr. 18,000
To Building and equipment A/c 168,000
(being building sold and loss booked)
Wingler A/c Dr. 5,400
Norris A/c Dr. 1,800
Rodgers A/c Dr. 3,600
Guthrie A/c Dr. 7,200
To Loss on sale of building and equipment A/c 18,000
(Being loss distributed to partners)
Note : The above two losses will be distributed to all the 4 partners as Guthrie became insolvent after allocating the above two losses. From now onwards, Guthrie will not bear any loss as he has now become insolvent.
3.
Total Balance of cash after above two sales =15,000+ 65,600+ 150,000
= 230,600
The availabe cash will be distributed to partners in their capital ratio. Cash will be going out hence that will be credited and partners' capital accounts will be debited as their balance will come down.
Wingler A/c Dr. 69,180
Norris A/c Dr. 23,060
Rodgers A/c Dr. 46,120
Gurthrie A/c Dr. 92,240
To Cash A/c 230,600
(Being cash distributed to partners)
4. Insolvency of Guthrie : Guthrie has become insolvent and hence he will not make any contributions to the losses. however there will be no journal entry passed for the insolvency. The amount standing after the liquidation proceedings will be paid to him.
5. Settlement of all liabilities :
Only one liability is there which is Rodgers loan. It is standing credit and hence this will be debited to be knoced off. Cash will be credited. :
Rodgers Loan A/c Dr. 35,000
To Cash A/c 35,000
(Being amount paid for loan)
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