The partners in Omni Company decided to liquidate the company on May 31, 2014, when balances in the company's accounts were as follows:

Cash......................................$33,000.........Accumulated depreciation........$ 6,600

Accounts receivable.....................30,000...................Accounts payable.........53,160

Allowance for doubtful accounts.......1,200...................L. Sciban, Capital.........39,600

Inventory.................................41,400....................V. Subra, Capital.........25,200

Equipment................................25,200...................C. Werier, Capital..........3,840

The partners share profit and loss 5:3:2 for Sciban, Subra, and Werier, respectively. During the process of liquidation, the transactions below were completed in the sequence shown:

1. A total of $20,000 was collected from the accounts receivable on June 2.

2. The inventory and equipment were sold for $48,000 cash on June 3.

3. Liabilities were paid in full on June 4.

4. Werier paid her capital deficiency on June 6.

5. Cash was paid to the partners with credit balances on June 9.

Instructions

(a) Prepare the entries to record the transactions.

(b) Post the transactions to the cash and capital accounts.

(c) Assume that Werier is unable to repay her capital deficiency. Prepare the entry to record (1) the reallocation of her deficiency, and (2) the final distribution of cash.

Taking It Further

In a liquidation, why are the liabilities paid before the partners?