Fred And George Have Been In Partnership For Many Years

Fred And George Have Been In Partnership For Many Years The Partners

Fred And George Have Been In Partnership For Many Years The Partners

Fred and George 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 $10,000. At the date the partnership ceases operations, the balance sheet is as follows: Cash $ 100,000, Noncash assets 200,000, Liabilities $ 80,000, Fred, capital 100,000, George, capital 120,000. Prepare journal entries for the following transactions: (Do not round intermediate calculations). If no entry is required, select "No journal entry required".

a. Distributed safe cash payments to the partners.

b. Paid $40,000 of the partnership’s liabilities.

c. Sold noncash assets for $220,000.

d. Distributed safe cash payments to the partners.

e. Paid all remaining partnership liabilities of $40,000.

f. Paid $8,000 in liquidation expenses; no further expenses will be incurred.

g. Distributed remaining cash held by the business to the partners.

Sample Paper For Above instruction

Introduction

The liquidation of a partnership involves settling all liabilities and distributing remaining assets to partners in accordance with their capital balances and profit-sharing ratios. The process requires careful journal entries to accurately reflect each transaction and ensure proper allocation of assets and liabilities. In this paper, we will analyze each step of the liquidation process for Fred and George, providing detailed journal entries based on the provided financials and transactions.

Partnership liquidation overview

The partnership between Fred and George is being liquidated with an emphasis on settling liabilities, selling assets, and distributing remaining cash. The initial balance sheet shows cash of $100,000, noncash assets valued at $200,000, total liabilities of $80,000, and capital balances of $100,000 for Fred and $120,000 for George. The liquidation expenses are estimated at $10,000, affecting the final cash distribution. The process involves various transactions, including payments, sales, and liquidation expenses, which must be correctly journalized.

Transaction analysis and journal entries

a. Distributed safe cash payments to the partners

When distributing cash to partners, the journal entry involves a debit to partner capital accounts and a credit to cash. Assuming the total cash is $100,000, the distribution will be apportioned according to their profit-sharing ratio (60:40).

Debit: Fred's Capital $60,000


Debit: George's Capital $40,000


Credit: Cash $100,000

b. Paid $40,000 of the partnership’s liabilities

The payment of liabilities reduces cash and liabilities, with a journal entry as follows:

Debit: Liabilities $40,000


Credit: Cash $40,000

c. Sold noncash assets for $220,000

The sale increases cash and recognizes any gain or loss. Assuming assets are sold at a fair value of $220,000:

Debit: Cash $220,000


Credit: Noncash assets $200,000


Credit: Gain on sale of assets $20,000

d. Distributed safe cash payments to the partners

This is similar to transaction a, with the distribution based on remaining balances after previous transactions.

e. Paid all remaining partnership liabilities of $40,000

Same as b, with the adjustments made to cash and liabilities:

Debit: Liabilities $40,000


Credit: Cash $40,000

f. Paid $8,000 in liquidation expenses

The expenses are recognized as a reduction in cash and recorded as liquidation expenses:

Debit: Liquidation Expenses $8,000


Credit: Cash $8,000

g. Distributed remaining cash held by the business to the partners

Final distribution after settling all debts and expenses, based on remaining cash and partner capital balances.

Conclusion

The liquidation process for Fred and George involves a series of systematic transactions that reduce assets, settle liabilities, and eventually distribute remaining cash to partners in accordance with their profit-sharing ratios. Precise journal entries ensure accurate financial reporting and reflect the true state of the partnership's dissolution.

References

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