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Exercise 12-10 Prior to the distribution of cash to the partners, the accounts in the VUP Company are: Cash $36,800; Vogel, Capital (Cr.) $21,400; Utech, Capital (Cr.) $19,400; and Pena, Capital (Dr.) $4,000. The income ratios are 5:3:2, respectively. VUP Company decides to liquidate the company. Prepare the entry to record (1) Pena’s payment of $4,000 in cash to the partnership and (2) the distribution of cash to the partners with credit balances. Prepare the entry to record (1) the absorption of Pena’s capital deficiency by the other partners and (2) the distribution of cash to the partners with credit balances
Expert Answer
Solution
1.
| Cash | Vogel, Capital | Utech, Capital | pena, capital | |
| Balances before liquidation | $36,800 | (21,400) | (19,400) | $4,000 |
| Pena payment | $4,000 | (4,000) | ||
| Balance | $40,800 | (21400) | (19,400) | – |
A. Entry to record the Pena’s payment of $4,000 in cash to the partnership
| Cash | $4,000 | |
| Pena, capital | $4,000 | |
(B)Entry to record the distribution of cash to the partners with credit balances
| Vogel, capital | $21,400 | |
| Utech, capital | $19,400 | |
| Cash | $40,800 |
2.
| Cash | Vogel, Capital | Utech, Capital | pena, capital | |
| Balances before liquidation | $36,800 | (21,400) | (19,400) | $4,000 |
| Absorb Pena deficiency | $2,500(4000×5/8) | $1,500(4000×3/8) | (4,000) | |
| Balance | $36,800 | (18,900) | (17,900) | – |
A. Entry to record the the absorption of Pena’s capital deficiency by the other partners
| Vogel, capital | $2,500 | |
| Utech, capital | $1,500 | |
| Pena, capital | $4,000 |
(B)Entry to record the distribution of cash to the partners with credit balances
| Vogel, capital | $18,900 | |
| Utech, capital | $17,900 | |
| Cash | $36,800 |
