Ole Low, Arnt Olson, and Stig Lokum decided to liquidate the LOL partnership on December 31 of

Question:

Ole Low, Arnt Olson, and Stig Lokum decided to liquidate the LOL partnership on December 31 of the current year, and go their separate ways. The partners share profit and losses equally. As at December 31, the partnership had cash of $15,000, noncash assets of $121,000, and liabilities of $22,000. Before selling their noncash assets, the partners had capital balances of $45,100, $59,900, and $9,000, respectively. The noncash assets were sold for $85,000 and the creditors were paid.

Instructions

(a) Calculate the loss on the sale of the noncash assets and the amount of cash remaining after paying the liabilities.

(b) Calculate the balance in each of the partners' capital accounts after allocating the loss from the sale of the noncash assets and paying the liabilities.

(c) Assume that all of the partners have the personal resources to cover a deficit in their capital accounts. Prepare journal entries to record any cash receipts from the partners to cover any existing deficit and to record the final distribution of cash.

(d) Now assume that the partners do not have the personal resources to cover a deficit in their capital accounts. Prepare journal entries to allocate any deficit to the remaining partners and to record the final distribution of cash.

Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...
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Accounting Principles

ISBN: 978-1119048473

7th Canadian Edition Volume 2

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak

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