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 $66,110; Oakley, Capital (Cr.) $51,870; Quaney, Capital (Dr.) $29,360; and Ellis, Capital (Cr.) $43,600. 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

Cash = $66,110

Oakley, capital = $51,870

Quaney, Capital = $29,360 (Debit)

Ellis, Capital = $43,600

Income ratio = 2 : 2 : 6

Deficiency in the account of Quaney will be borne by Oakley and Ellis in the ratio of 2 :6

Quaney's deficiency borne by Oakley = 29,360 x 2/8

= $7,340

Quaney's deficiency borne by Ellis = 29,360 x 6/8

= $22,020

Cash received by Oakley = Oakley, capital - Quaney's deficiency borne by Oakley

= 51,870 - 7,340

= $44,530

Cash received by Ellis = Ellis, Capital - Quaney's deficiency borne by Ellis

= 43,600 - 22,020

= $21,580

Journal

No.

Account Title and Explanation

Debit

Credit
1 Oakley's capital 7,340
Ellis capital 22,020
Quaney's, capital 29,360
2 Oakley's capital 44,530
Ellis capital 21,580
Cash 66,110
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