Data for Sedgwick Company are presented in E12.8. Sedgwick Company now decides to liquidate the partnership. Instructions Prepare the entries to record: (a) The sale of noncash assets. (b) The allocation of the gain or loss on realization to the partners. (c) Payment of creditors. (d) Distribution of cash to the partners.

Complete Question:

Sedgwick Company at December 31 has cash $22,800, noncash assets $108,000, liabilities $57,800, and the following capital balances: Floyd $43,200 and DeWitt $29,800. The firm is liquidated, and $113,000 in cash is received for the noncash assets. Floyd and DeWitt income ratios are 70% and 30%, respectively. Sedgwick Company now decides to liquidate the partnership. Prepare the entries to record: (Credit account titles are automatically indented when amount is entered. Do not indent manually.) (a) The sale of noncash assets. (b) The allocation of the gain or loss on realization to the partners. (c) Payment of creditors. (d) Distribution of cash to the partners.

Answer:

The entries are given below alongwith its explanation:

Explanation:

Part A. As the Non Cash Assets are sold at gain $5000 (113k-108k), the entry would be as under:

Dr Cash 113000

Cr non cash asset 108000

Cr Gain on sale of asset 5000

Part B. The entry to record the allocation of the gain to partners Floyd and Dewitt at 70:30 respectively.

Dr Gain on sale of asset $5000

Cr Floyd capital ($5000 * 70%) $3500

Cr Dewitt capital ($5000 * 30%) $1500

Part C. The payment of the liabilities by cash receipt of selling the capital would be as under:

Dr Liabilities $57800

Cr Cash $57800

Part D. The amount left (capital) after paying off the liabilities would be distributed among the partners at capital ratio.

Dr Floyd capital $46,700 (43200 70% + 3500 Gain)

Dr Dewitt capital $31,300 (29800 30% + 1500 Gain)

Cr Cash $78,000