Question

Alex and Bess have been in partnership for many years. The partners, who share profits and losses on a 60:40 basis, respectively, wish to retire and have agreed to liquidate the business. Liquidation expenses are estimated to be $9,500. At the date the partnership ceases operations, the balance sheet is as follows:

Cash	$	71,000	Liabilities	$	61,000
Noncash assets		300,000	Alex, capital		180,000
			Bess, capital		130,000
Total assets	$	371,000	Total liabilities and capital	$	371,000

Part A: Prepare journal entries for the following transactions:

Distributed safe cash payments to the partners.

Paid $36,600 of the partnership’s liabilities.

Sold noncash assets for $310,000.

Distributed safe cash payments to the partners.

Paid remaining partnership liabilities of $24,400.

Paid $8,500 in liquidation expenses; no further expenses will be incurred.

Distributed remaining cash held by the business to the partners.

Part B: Prepare a final statement of partnership liquidation.

ALEX AND BESS PARTNERSHIP
Statement of Partnership Liquidation
	Cash	Non-cash Assets	Liabilities	Alex, Capital	Bess, Capital
Beginning balances
Distribution to partners
Paid liabilities
Sold noncash assets
Updated balances
Distribution to partners
Updated balances
Paid liabilities
Paid liquidation expenses
Updated balances
Distribution to partners
Closing balances

Answer 1

Safe Cash Payments refers to the cash that can be safely distributed amongst the partners after keeping into account the liabilities to be paid.

ALEX AND BESS PARTNERSHIP Statement of Partnership Liquidation Cash Non-cash Assets Liabilities Alex, Capital Bess, Capital Beginning balances 71,000 300,000 61,000 180,000 130,000 Distribution to partners (500) (290) (210) Paid liabilities (36,600) (36,600) Sold noncash assets 310,000 (300,000) 6,000 4,000 Updated balances 343,900 Nil 24,400 185,710 133,790 Distribution to partners (310,000) (180,000) (130,000) Updated balances 33,900 24,400 5,710 3,790 Paid liabilities (24,400) (24,400) Paid liquidation expenses (8,500) (5,100) (3,400) Updated balances 1,000 Nil 610 390 Distribution to partners (1000) (610) (390) Closing balances NIL NIL NIL NIL NIL