Question

Sedgwick company t December 31 has a cash $22,400, Noncash asset $108,000, liabilities $57,400, and the following capital balance: Floyd $44,800 and Dewitt $28,00. The firm liquidated, and $118,000 in cash is recieved for the non cash asset.the firm is liquidated, and $118,000 in cash is received for the non cash asset. Floyd and Dewitt income ratios are 60% and 40%, respectively. Sedgwick Company now decides to liquidate the partnership.

Prepare entries to record:

A) sales of noncash asset

b) the allocation of the gain or loss on realization to the partners

c) payment of creditors.

d) distribution of cash to the partners

Account Tiitles and explanation Debit Credit

a)

Answer 1

Answer :

	Account Titles and Explanation	Debit	Credit
a)	Cash	118,000
	Gain on sale of noncash asset		10,000
	Noncash asset		108,000
	[To record sales of noncash asset]
b)	Gain on sale of noncash asset	10,000
	Floyd Capital (60%)		6,000
	DeWitt Capital (40%)		4,000
	[To record  allocation of the gain on sale of noncash asset]
c)	Liabilities	57,400
	Cash		57,400
	[To record payment of creditors]
d)	Floyd Capital (60%)	49,800
	DeWitt Capital (40%)	33,200
	Cash [Working Note]		83,000
	[ To record distribution of cash to the partners]

Working Note :

Balance of cash to be distributed to partners

= Balance before liquidation + Sales of noncash asset - Payment of creditors

= $22,400 + $118,000 - $57,400 = $83,000