Accounting for Liquidation of a Partnership - Essay Example

Accounting for Liquidation of a Partnership Questions a. Gain/ Loss realized on the sale of assets = Sales value-Net Book Value = 85, 000-106,000 = -21, 000 (Loss)     Name Partnership General Jou+A2:J25rnal           GENERAL JOURNAL                         Date  Account Titles and ExplanationP. R.DebitCredit  Asset A/C   GJ21, 000     Realization A/ GJ 21, 000  Being loss on realization       Sand      1, 200  Mell      11, 700  Rand      15, 100    Loss: Sand  2, 100      Mell  8, 400      Rand  10, 500   Being losses on realization       Assets A/C    106, 000    Realiczation A/CA/C  85, 000     Loss on realization 21, 000   Being losses on disposal of assets     Liabilities A/c    88, 000     Cash    95, 000  cash balance   7, 000   Being payment of liabilities    b.

Sand-1/10 x 21, 000 = (2, 100)Mell-4/10 x 21, 000 = (8, 400)Rand-5/10 x 21, 000= (10, 500)Hence, balances in the partner’s capital accountsSand’s Capital AccountDebit Loss 2, 100 2, 100 Credit Balance b/d 1, 200Balance c/d 900 2, 100 Mell’s Capital AccountDebit Loss 8, 400Balance c/d 3, 300 11, 700Credit Balance b/d 11, 700 11, 700Rand’s Capital AccountDebit Loss 10, 500Balance c/d 4, 600 15, 100Credit Balance b/d 15, 100 15, 100c.

Items $ $Cash 10, 000Other assets 85, 000Total Assets 95, 000Less: Total liabilities (88, 000)Sand (1/10 x 7000) 700Mell (4/10 x 7000) 2, 800Rand (5/10 x 7000) 3, 500Remaining cash after liquidation 7, 000 Liquidation of a partnership may occur if and only if, a partner has died, there is a mutual agreement between partners to end the business, if the partnership was contractual and its objective is met, there exist continued disagreements between the partners, a request by one of the partners for dissolution or bankruptcy due to continuous loss making (Warren, 2011).

Prior to the liquidation period, the partnership should ensure that the accounting cycle is complete by preparing the financial statements having adjusted the entries, closing entries, and the post-closing trial balance. Hence, the balance sheet is the document open in the liquidation process (Delaney & Whittington, 2005). Liquidating a partnership necessitates selling noncash assets for cash and recognition of gain or loss on realization, allocation of the gains or losses to the partners based on their profit/loss ratios, cash payment of the liabilities of the partnership and distributing the remaining cash to the partners based on their capital balances.

The aforementioned steps of the partnership liquidation process must be executed sequentially (Kimmel, Weygandt & Kieso, 2011). The other options available for partnership include placing the business under receivership where an administrative receiver is appointed to oversee the recovery process of the business in case of a limited liability partnership (Delaney & Whittington, 2005). In addition, the partners may decide to undertake an individual voluntary agreement with the creditors so that the secured creditors can be assured of their security enforcement before their final decision on forcing the partner into bankruptcy (Reeve, Warren & Duchac, 2012).

ReferencesKimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools for business decision making. Hoboken, N.J: Wiley.Delaney, P. R., & Whittington, R. (2005). Wiley CPA exam review. Hoboken, NJ: Wiley.Warren, C. S. (2011). Accounting: Chapters 1-13. S.l.: Cengage Learning.Reeve, J. M., Warren, C. S., & Duchac, J. E. (2012). Accounting: Using Excel for success. Mason, OH: South-Western Cengage Learning.