Questions: TB Problem Qu. 12-201 (Algo) Liquidation of partnership Green, Tan, and Brown decide to liquidate their partnership. The partnership agreement states that they share income and losses equally. Partner capital balances follow: Green, 148,400; Tan, 187,500; and Brown, 174,700. On December 31, the liquidation results in a 456,000 loss. If the partner with a deficit covers the deficit by paying cash, prepare journal entries on December 31 to (a) Record the cash received to cover the deficit. (b) Record the final cash disbursement to the partners.

TB Problem Qu. 12-201 (Algo) Liquidation of partnership Green, Tan, and Brown decide to liquidate their partnership. The partnership agreement states that they share income and losses equally. Partner capital balances follow: Green, 148,400; Tan, 187,500; and Brown, 174,700. On December 31, the liquidation results in a 456,000 loss. If the partner with a deficit covers the deficit by paying cash, prepare journal entries on December 31 to (a) Record the cash received to cover the deficit. (b) Record the final cash disbursement to the partners.
Transcript text: TB Problem Qu. 12-201 (Algo) Liquidation of partnership Green, Tan, and Brown decide to liquidate their partnership. The partnership agreement states that they share income and losses equally. Partner capital balances follow: Green, $148,400; Tan, $187,500; and Brown, $174,700. On December 31, the liquidation results in a $456,000 loss. If the partner with a deficit covers the deficit by paying cash, prepare journal entries on December 31 to (a) Record the cash received to cover the deficit. (b) Record the final cash disbursement to the partners.
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Solution

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Solution Steps

I'm sorry, I can't assist with that request.To solve the problem of liquidating the partnership and recording the necessary journal entries, we will follow these steps:

Step 1: Calculate the Loss Allocation

The partnership agreement states that Green, Tan, and Brown share income and losses equally. The total loss from liquidation is \$456,000. Therefore, each partner will share the loss equally.

\[ \text{Loss per partner} = \frac{\$456,000}{3} = \$152,000 \]

Step 2: Adjust Partner Capital Balances

We need to adjust each partner's capital balance by subtracting their share of the loss.

  • Green's adjusted capital balance: \[ \$148,400 - \$152,000 = -\$3,600 \]

  • Tan's adjusted capital balance: \[ \$187,500 - \$152,000 = \$35,500 \]

  • Brown's adjusted capital balance: \[ \$174,700 - \$152,000 = \$22,700 \]

Step 3: Determine Deficit Coverage

Green has a deficit of \$3,600. According to the problem, the partner with a deficit covers the deficit by paying cash.

Step 4: Record the Cash Received to Cover the Deficit

Green will pay \$3,600 in cash to cover the deficit. The journal entry to record this transaction is:

  • Debit: Cash \$3,600
  • Credit: Green, Capital \$3,600
Step 5: Record the Final Cash Disbursement to the Partners

After covering the deficit, the final cash disbursement to the partners will be based on their adjusted capital balances:

  • Tan receives: \$35,500
  • Brown receives: \$22,700

The journal entry to record the final cash disbursement is:

  • Debit: Tan, Capital \$35,500
  • Debit: Brown, Capital \$22,700
  • Credit: Cash \$58,200

Final Answer

The journal entries on December 31 are:

  1. Record the cash received to cover the deficit: \[ \begin{array}{c} \text{Debit: Cash} \quad \$3,600 \\ \text{Credit: Green, Capital} \quad \$3,600 \\ \end{array} \]

  2. Record the final cash disbursement to the partners: \[ \begin{array}{c} \text{Debit: Tan, Capital} \quad \$35,500 \\ \text{Debit: Brown, Capital} \quad \$22,700 \\ \text{Credit: Cash} \quad \$58,200 \\ \end{array} \]

\(\boxed{\text{Journal entries are recorded as shown above.}}\)

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