Question 1 (15 marks)

The following is the balance sheet on December 31, 2020 for ABC Enterprises:

ABC Enterprises

Balance Sheet

At December 31, 2020

Assets

Cash $260,000

Accounts receivable, net 164,000

Inventory 128,000

Equipment, net 168,000

Total Assets $720,000

Liabilities and Partners capital

Liabilities $246,000

Partners Capital

P. Adams $126,000

Q. Beaven 154,000

R. Charles 194,000 474,000

Total Liabilities and partners capital $720,000

Adams, Beaven and Charles share profits and losses in the ratio 2:3:4

The following are INDEPENDENT cases.

Case 1: On January 1, 2021, the partners decide to admit Shelby Devilliers to the partnership. Shelby contributes $80,000 in cash and equipment with a fair value of $120,000 for a 25% share. The original partners decided to continue with their existing profit-sharing ratio.

Required: Prepare the journal entries to record Shelby Devlilliers admission. Show your calculations clearly (5 marks)

Case 2: Disregard the information in Case 1. On January 1, 2021, Q. Beaven withdrew from the partnership. In recognition of his years of service to the partnership, the remaining partners, P Adams and R Charles decided to pay her $196,000.

Required: Prepare the journal entry to record Q Beavens withdrawal (5 marks).

Case 3: Disregard the information in Case 1 and 2. On December 31, 2020, the partners decide to liquidate their partnership. They managed to collect $154,500 on the accounts receivable and sold the inventory for $100,000. Due to its excellent condition, the equipment was sold for $210,000. The cash remaining after paying off the liabilities was distributed among the partners.

Required: Prepare the journal entries for the liquidation of the partnership (5 marks).