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.

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.

Answer 1

William Gerloff, Joshua Chu, and Courtney Jewett LLC

Journal Entries

a. February 28:

Debit Williams' Capital $600

Debit Courtney's Capital $300

Credit Joshua's Capital $900

To allocate the partner's deficiency

b. February 28:

Debit Williams' Capital $8,740

Debit Courtney's Capital $16,920

Credit Cash $25,660

To distribute the remaining cash to partners.

Step-by-step explanation:

a) Data and Calculations:

Cash $5,600

Non-cash assets 54,240

Creditors 14,500

Profit sharing = 2:1:1

February Cash in hand:

Cash $5,600

Non-cash assets 34,560 Loss from assets 19,680

Cash balance $40,160

Settlement of creditors (14,500)

Balance for distribution $25,660

If partner pays deficiency 900

Total cash for distribution $26,560

William Gerloff Joshua Chu Courtney Jewett

Capital balances $19,180 $4,020 $22,140

Loss sharing (9,840) (4,920) 4,920)

Capital balance $9,340 ($900) $17,220

Cash distribution (9,340) (17,220)

Capital balances $0 $0 $0

If partner with the capital deficiency declares bankruptcy and is unable to pay the deficiency, the deficiency will be shared between William and Courtney as follows:

William = 2/3 * $900 = $600

Courtney 1/3 * $900 = $300

Capital distribution with unpaid deficiency, with total cash for distribution of $26,560:

William Gerloff Joshua Chu Courtney Jewett

Capital balances $19,180 $4,020 $22,140

Loss sharing (9,840) (4,920) 4,920)

Capital balance $9,340 ($900) $17,220

Deficiency sharing (600) (300)

Cash distribution (8,740) (16,920)

Capital balances $0 $0 $0

Journal Entries

February 28:

Debit Cash $34,560

Non-cash assets $35,560

To record the receipt of cash from the sale of assets.

Debit Creditors $14,500

Credit Cash $14,500

To settle creditors.