The partners in River Song Company decide to liquidate the firm when the balance sheet shows the following.
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RIVER SONG COMPANY
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Balance Sheet
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May 31, 2012
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Assets
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Liabilities and Owners' Equity
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Cash
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$ 27,500
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Notes payable
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$ 13,500
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Accounts receivable
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25,000
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Accounts payable
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27,000
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Allowance for doubtful accounts
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(1,000)
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Salaries and wages payable
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4,000
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Inventory
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34,500
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A. Mangold, capital
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33,000
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Equipment
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21,000
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S. Otis, capital
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21,000
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Accumulated depreciation-equipment
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(5,500)
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P. Tyler, capital
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3,000
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Total
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$101,500
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Total
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$101,500
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The partners share income and loss 5 : 3 : 2. During the process of liquidation, the following transactions were completed in the following sequence.
1. A total of $55,000 was received from converting noncash assets into cash.
2. Gain or loss on realization was allocated to partners.
3. Liabilities were paid in full.
4. P. Tyler paid his capital deficiency.
5. Cash was paid to the partners with credit balances.
Instructions
(a) Prepare the entries to record the transactions.
(b) Post to the cash and capital accounts.
(c) Assume that Tyler is unable to pay the capital deficiency.
(1) Prepare the entry to allocate Tyler's debit balance to Mangold and Otis.
(2) Prepare the entry to record the final distribution of cash.