Question & Answer: Exercise 12-10 Prior to the distribution of cash to the partners, the accounts in the VUP Company are: Cash…..

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
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