After realization of all noncash assets and the payment of all liabilities, the balance sheet of the liquidating Pon, Quan & Ron LLP on January 31, 2005, showed Cash,$15,000; Pon, Capital, ($9,000); Quan & Ron, Capital, $16,000, with ( ) indicating a capital deficit. The partners share net income and losses equally.
Prepare a journal entry for Pon, Quan & Ron LLP Jan 31, 2005, to show the payment of $15,000 cash in a safe manner to the partners. Show computations in the explaination for the journal entry.
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Delanour
To prepare the journal entry for the payment of $15,000 cash to the partners of Pon, Quan & Ron LLP on January 31, 2005, we need to understand the capital balances of each partner and the process of liquidation.
First, let's analyze the capital balances:
- Pon, Capital: ($9,000) (indicating a capital deficit)
- Quan & Ron, Capital: $16,000
From the given information, we know that the partners share net income and losses equally. This means that any liquidating distribution should also be shared equally.
Now, let's calculate the distribution amount for each partner:
Total Capital Balance = Pon, Capital + Quan & Ron, Capital
= ($9,000) + $16,000
= $7,000
Since the partners share net income and losses equally, each partner's share of the distribution amount would be:
Share of Distribution Amount = Total Capital Balance / Number of Partners
= $7,000 / 2
= $3,500
This distribution amount will be paid to each partner in a safe manner, totaling $15,000.
To prepare the journal entry for this transaction, assuming we are paying $15,000 to each partner, the journal entry would be as follows:
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Date: January 31, 2005
Cash $ 15,000
To Pon, Capital $ 3,500
Quan & Ron, Capital $ 3,500
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Explanation:
The journal entry debits the Cash account with $15,000, representing the payment made to the partners. On the credit side, we credit both partners' Capital accounts. Pon, Capital is credited with $3,500, and Quan & Ron, Capital is also credited with $3,500.
This distribution of cash reduces the Cash account and reflects the reduction in the partners' capital accounts, bringing them closer to zero as the liquidation process continues.
Note: It's important to consult with a professional accountant or financial advisor to ensure accuracy and compliance with any specific regulations or requirements in your jurisdiction.