Question

Parsons Company wishes to liquidate the firm by distributing the company’s cash to the three partners....

Parsons Company wishes to liquidate the firm by distributing the company’s cash to the three partners. Prior to the distribution of cash, the company’s balances are: Cash $67,760; Oakley, Capital (Cr.) $51,110; Quaney, Capital (Dr.) $22,080; and Ellis, Capital (Cr.) $38,730. The income ratios of the three partners are 2 : 2 : 6, respectively. Prepare the entry to record the absorption of Quaney’s capital deficiency by the other partners and the distribution of cash to the partners with credit balances.

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Answer #1
  • Journal entries

Accounts title

Debit

Credit

Oakley, Capital

$5,520

Ellis, Capital

$16,560

Quaney, Capital

$22,080

(to absorb difeciency)

Oakley, Capital

$45,590

Ellis, Capital

$22,170

Cash

$67,760

(to distribute cash)

  • Workings

>ratio = 2:2:6
>ratio of solvent partner = 2:6 [2 + 6 = 8]

Oakley

Quaney

Ellis

Capital Balance (Deficiency)

$51,110

($22,080)

$38,730

Deficiency filled by other partner

($5,520) [22080 x 2/8]

$22,080

($16,560) [22080 x 6/8]

Ending balance to be paid Cash

$45,590

$0

$22,170

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