The partnership shows the following capital balances after the allocation of liquidation gains and losses: Kapoor,$22,000,Patel,$11,000,and Punjab,$9,000.After selling the noncash assets and paying the liabilities of the partnership,the Cash account has a balance of $40,000.The partners share income and loss equally.Any remaining cash is divided among the partners according to their capital account balances.How would the partnership record this transaction?

Question

Quizplus · Accepted Answer

The transaction involves the liquidation of the partnership, which means the partnership is closing down and distributing its assets to the partners. The first step is to allocate the liquidation gains and losses among the partners based on their capital balances. Kapoor gets $22,000, Patel gets $11,000, and Punjab gets $9,000. These amounts should be debited to their capital accounts because they are getting their share of the gains/losses.

The next step is to sell the noncash assets and pay off the partnership's liabilities. The remaining cash of $40,000 is then distributed among the partners according to their capital account balances. This means Kapoor gets 22,000/42,000 x $40,000 = $20,952.38, Patel gets 11,000/42,000 x $40,000 = $10,476.19, and Punjab gets 9,000/42,000 x $40,000 = $8,571.43. These amounts should be debited to their capital accounts, and the Cash account should be credited for $40,000.

Therefore, choice E is the correct answer.

The Partnership Shows the Following Capital Balances After the Allocation