The three partners of Hawkdale Contractors agree to liquidate their partnership on August 8, 2017. At that point, the accounting records show the following balances:

The three partners share profit and loss equally.

Instructions

(a) Journalize the liquidation of the partnership on August 8 under each of the following independent assumptions:

1. The inventory is sold for $434,000 cash, the bank loan payable is paid, and the remaining cash is paid to the partners.

2. The inventory is sold for $318,000 cash and the bank loan payable is paid. Assume that any partners with a debit capital balance pay the amount owed to the partnership.

(b) Refer to item 2 above. Assume instead that any partners with a debit capital balance are unable to pay the amount owed to the partnership. Journalize the reallocation of the deficiency and final distribution of cash to the remaining partners.

TAKING IT FURTHER

What can partners do when a partnership is first created to reduce the possibility that one of the partners will have a deficit (debit balance) when the partnership is liquidated?

Transcribed Image Text:

Cash Inventory Bank loan payable $142,600 402,900 113,000 H. Brumby, capital R. Criolio, capital A. Paso, capital 227,900 179,900 24,700