Prior to the distribution of cash to the partners, the accounts in the NJF Company are: Cash $28,000, Newell Capital (Cr.) $17,000, Jennings Capital (Cr.) $15,000, and Farley Capital (Dr.) $4,000.The income ratios are 5 : 3 : 2, respectively.

Note: Capital A/C has Normal Credit balances, therefore, a debit balance in Farly's capital account shows deficiency of capital.

Instructions:

Prepare the journal entry to record.

Scenario no. 1

Farley's payment of $4,000 in cash to the partnership

Distribution of cash to the partners with credit balances.

Scenario no. 2

The absorption of Farley's capital deficiency by the other partners

The distribution of cash to the partners with credit balances.