Question

Taylor, Ullman & Victor Limited Liability Partnership, whose partners share net income or loss equally, is in liquidation. Partner Taylor, whose capital account had a debit balance of $3,000, paid a $4,000 trade account payable of the partnership. The appropriate journal entry (explanation omitted) for the partnership is:

A) DR: Cash 4,000
CR: Taylor, Capital 4,000
B) DR: Trade Accounts Payable 4,000
Taylor, Capital 4,000
C) DR: Trade Accounts Payable 4,000
CR: Taylor, Capital 3,000
CR: Ullman, Capital 500
CR: Victor, Capital 500
D) DR: Trade Accounts Payable 4,000
CR: Loan Payable to Taylor 4,000

Answer 1

The appropriate journal entry for the partnership in liquidation where Partner Taylor pays a $4,000 trade account payable is to debit Trade Accounts Payable and credit Taylor's Capital account for $3,000 and the remaining partners' capital accounts equally for the difference.

Step-by-step explanation:

The correct journal entry for the situation where Partner Taylor, of Taylor, Ullman & Victor Limited Liability Partnership, pays a $4,000 trade account payable of the partnership, and his capital account had a debit balance of $3,000 is:

DR: Trade Accounts Payable 4,000
CR: Taylor, Capital 3,000
CR: Ullman, Capital 500
CR: Victor, Capital 500

This entry assumes that any excess payment made by a partner should be absorbed by the remaining partners equally, and since Taylor's capital account has a deficiency, he is technically investing additional equity to cover it. Therefore, the correct answer is option C) DR: Trade Accounts Payable 4,000 CR: Taylor, Capital 3,000 CR: Ullman, Capital 500 CR: Victor, Capital 500.