On October 1, 2015, the firm of Orson, Dorr, and Killough decided to liquidate its partnership. The partners have capital balances of $48,000, $63,000, and $11,000, respec- tively. The cash balance is $9,000, the carrying value of the equipment totals $155,000, and liabilities total $42,000. The partners share income and losses of the partnership in a ratio of 2:2:1.
1. Prepare a statement of partnership liquidation, covering the period October 1-30 2015, for each of the following independent assumptions:
a. The equipment is sold for $195,000, the creditors are paid, and the remaining cash is distributed to the partners.
b. The equipment is sold for $85,000, in cash, the creditors are paid, the partner with the debit capital balance pays the amount owed to the firm, and the
remaining cash is distributed to the partners.
2. Assume the partner with the capital deficiency in part (b) above declares bankruptcy and is unable to pay the deficiency. Journalize the entries to
(a) Allocate the partner's deficiency
(b) Distribute the remaining cash.