The Hylands Hotels are liquidating their partnership. Before selling the assets and paying liabilities, the capital balances for the partners are: Martha $45,000; Nathan $36,000 and Orin $26,000. The profit and loss sharing ratio has been 2:2:1 for Martha, Nathan and Orin respectively. The partnership has cash $68,000, $75,000 noncash assets and $36,000 Accounts payable. I. Assume the partnership sells the non-cash assets and received $84,000 in cash. II. Assume the partnership sells the noncash assets and received $35,000. Instructions Under both assumptions, prepare the entries to record: (a) The sale of noncash assets. (b) The allocation of the gain or loss on liquidation to the partners. (c) Payment of creditors. (d) Distribution of cash to the partners.

Ia. Debit Cash $84,000

Credit Non-cash asset $75,000

Gain on sale $9,000

Ib. Debit Gain on sale $9,000

Credit Martha, capital $3,600

Credit Nathan, capita $3,600

Credit Orin, capital $1,800

Ic. Debit Accounts payable $36,000

Credit Cash $36,000

Id. Debit Martha, capital $48,600

Debit Nathan, capita $39,600

Debit Orin, capital $27,800

Credit Cash $116,000

IIa. Debit Cash $35,000

Loss on sale $40,000

Credit Non-cash asset $75,000

IIb. Debit Martha, capital $16,000

Debit Nathan, capital $16,000

Debit Orin, capital $8,000

Credit loss on sale $40,000

IIc. Debit Accounts payable $36,000

Credit Cash $36,000

IId. Debit Martha, capital $29,000

Debit Nathan, capita $20,000

Debit Orin, capital $18,000

Credit Cash $67,000

Explanation:

Ia. During the sale on non-cash asset, we debit the cash we received during the sale and credit the the non-cash asset and another credit of gain on sale. So we debit cash $84,000 credit Non-cash asset to remove it from the book in the amount of $75,000 and another credit of $9,000 gain on sale.

Ib. The gain we credited earlier will be allocated to the partners based on the profiy and loss sharing ratio.

Debit Gain on sale $9,000

Credit Martha, capital (9,000 x 2/5) $3,600

Credit Nathan, capital (9,000 x 2/5) $3,600

Credit Orin, capital (9,000 x 2/5) $1,800

Ic. To record payment to creditor, we simply debit Accounts payable in the amount of $36,000 and credit Cash in the same amount of $36,000.

Id. The cash subject for allocation is the remaining amount after we deduct the cash we paid to outside creditor plus the amount we received from the sale on non-cash asset.

Beginning cash $68,000 - $36,000 (payment to creditor) + $84,000 (cash received from sale of non-cash assets) = $116,000

$116,000 - (45,000 + 36,000 + 26,000) = $9,000

We now allocate the cash based on the capital balances of the partners and divide the excess based on the profit or loss sharing ratio.

Debit Martha, capital (45,000 + (9,000 x 2/5) $48,600

Debit Nathan, capital (36,000 + (9,000 x 2/5) $39,600

Debit Orin, capital (26,000 + (9,000 x 2/5) $27,800

Credit cash $116,000

IIa. During the sale on non-cash asset, we debit the cash we received during the sale and credit the the non-cash asset. The difference between Cash received and the value of an asset will be charged to gain or loss. So we debit cash $35,000 and another debit of loss on sale in the amount of $40,000 then credit Non-cash asset to remove it from the book in the amount of $75,000 ...

Ib. The loss we Debited earlier will be allocated to the partners based on the profit and loss sharing ratio.

$75,000 - $35,000 = $40,000

Debit Martha, capital (40,000 x 2/5) $16,000

Debit Nathan, capital (40,000 x 2/5) $16,000

Debit Orin, capital (40,000 x 2/5) $8,000

Credit loss on sale $40,000

Ic. To record payment to creditor, we simply debit Accounts payable in the amount of $36,000 and credit Cash in the same amount of $36,000.

Id. The cash subject for allocation is the remaining amount after we deduct the cash we paid to outside creditor plus the amount we received from the sale on non-cash asset.

Beginning cash $68,000 - $36,000 (payment to creditor) + $35,000 (cash received from sale of non-cash assets) = $67,000

$67,000 - (45,000 + 36,000 + 26,000) = ($40,000)

We now allocate the cash based on the capital balances of the partners and divide the losses based on the profit or loss sharing ratio.

Debit Martha, capital (45,000 - (40,000 x 2/5)) $29,000

Debit Nathan, capital (36,000 + (40,000 x 2/5)) $20,000

Debit Orin, capital (26,000 + (40,000 x 2/5)) $18,000

Credit cash $67,000