Concept explainers
(1)
Prepare the
(1)
Explanation of Solution
(a) To record the sale of inventory.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Cash | 600,000 | ||
Inventory | 537,200 | ||
Gain on sale of inventory | 62,800 | ||
(To record the sale of inventory and gain on sale of inventory) |
Table (1)
- Cash is an asset account and it is increased. Therefore, debit cash with $600,000.
- Inventory is an asset account and it is decreased. Therefore, credit cash with $537,200.
- Gain on sale of inventory is a component of
stockholders’ equity and it is increased. Therefore, credit gain on sale of inventory with $62,800.
(b) To record the allocation of gain on sale of inventory to the partners’ capital account.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Gain on sale of inventory | 62,800 | ||
K’s Capital | 31,400 | ||
C’s Capital | 20,933 | ||
M’s Capital | 10,467 | ||
(To record the allocation of gain on sale of inventory to the partners’ capital account) |
Table (2)
- Gain on sale of inventory is a component of stockholders’ equity and it is decreased. Therefore, debit gain on sale of inventory with $62,800.
- K’s Capital is a capital account and it is increased. Therefore, credit K’s Capital with $31,400.
- C’s Capital is a capital account and it is increased. Therefore, credit C’s Capital with $20,933.
- M’s Capital is a capital account and it is increased. Therefore, credit M’s Capital with $10,467.
(c) To record the payment of liabilities at book value.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Accounts payable | 245,500 | ||
Cash | 245,500 | ||
(To record the payment of liabilities at book value) |
Table (3)
- Accounts payable is a liability account and it is decreased. Therefore, debit accounts payable with $245,500.
- Cash is an asset account and it is decreased. Therefore, credit cash account with $245,500.
(d) To record the distribution of cash:
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
K’s Capital | 124,400 | ||
C’s Capital | 233,433 | ||
M’s Capital | 177,467 | ||
Cash (1) | 535,300 | ||
(To record the distribution of cash) |
Table (4)
- K’s Capital is a capital account and it is decreased. Therefore, debit K’s Capital with $31,400.
- C’s Capital is a capital account and it is decreased. Therefore, debit C’s Capital with $20,933.
- M’s Capital is a capital account and it is decreased. Therefore, debit M’s Capital with $10,467.
- Cash is an asset account and it is decreased. Therefore, credit cash account with $535,300.
Working note:
Calculate the amount of cash for distribution:
(2)
Prepare the journal entry if the inventory is sold at $500,000.
(2)
Explanation of Solution
(a) To record the sale of inventory.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Cash | 500,000 | ||
Loss on sale inventory | 37,200 | ||
Inventory | 537,200 | ||
(To record the sale of inventory and loss on sale of inventory) |
Table (5)
- Cash is an asset account and it is increased. Therefore, debit cash with $500,000.
- Inventory is an asset account and it is decreased. Therefore, credit cash with $537,200.
- Loss on sale of inventory is a component of stockholders’ equity and it is decreased. Therefore, debit loss on sale of inventory with $37,200.
(b) To record the allocation of loss on sale of inventory to the partners’ capital account.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
K’s Capital | 18,600 | ||
C’s Capital | 12,400 | ||
M’s Capital | 6,200 | ||
Loss on sale of inventory | 37,200 | ||
(To record the allocation of loss on sale of inventory to the partners’ capital account) |
Table (6)
- K’s Capital is a capital account and it is decreased. Therefore, debit K’s Capital with $18,600.
- C’s Capital is a capital account and it is decreased. Therefore, debit C’s Capital with $12,400.
- M’s Capital is a capital account and it is decreased. Therefore, debit M’s Capital with $6,200.
- Loss on sale of inventory is a component of stockholders’ equity and it is increased. Therefore, credit loss on sale of inventory with $37,200.
(c) To record the payment of liabilities at book value.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Accounts payable | 245,500 | ||
Cash | 245,500 | ||
(To record the payment of liabilities at book value) |
Table (7)
- Accounts payable is a liability account and it is decreased. Therefore, debit accounts payable with $245,500.
- Cash is an asset account and it is decreased. Therefore, credit cash account with $245,500.
(d) To record the distribution of cash:
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
K’s Capital | 74,400 | ||
C’s Capital | 200,100 | ||
M’s Capital | 160,800 | ||
Cash (2) | 435,500 | ||
(To record the distribution of cash) |
Table (8)
- K’s Capital is a capital account and it is decreased. Therefore, debit K’s Capital with $31,400.
- C’s Capital is a capital account and it is decreased. Therefore, debit C’s Capital with $20,933.
- M’s Capital is a capital account and it is decreased. Therefore, debit M’s Capital with $10,467.
- Cash is an asset account and it is decreased. Therefore, credit cash account with $435,500.
Working note:
Calculate the amount of cash for distribution:
(3)
Prepare the journal entry if the inventory is sold at $320,000 and partners with deficits pay their deficits in cash.
(3)
Explanation of Solution
(a) To record the sale of inventory.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Cash | 320,000 | ||
Loss on sale inventory | 217,200 | ||
Inventory | 537,200 | ||
(To record the sale of inventory and loss on sale of inventory) |
Table (9)
- Cash is an asset account and it is increased. Therefore, debit cash with $320,000.
- Inventory is an asset account and it is decreased. Therefore, credit cash with $537,200.
- Loss on sale of inventory is a component of stockholders’ equity and it is decreased. Therefore, debit loss on sale of inventory with $217,200.
(b) To record the allocation of loss on sale of inventory to the partners’ capital account.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
K’s Capital | 108,600 | ||
C’s Capital | 72,400 | ||
M’s Capital | 36,200 | ||
Loss on sale of inventory | 217,200 | ||
(To record the allocation of loss on sale of inventory to the partners’ capital account) |
Table (10)
- K’s Capital is a capital account and it is decreased. Therefore, debit K’s Capital with $108,600.
- C’s Capital is a capital account and it is decreased. Therefore, debit C’s Capital with $72,400.
- M’s Capital is a capital account and it is decreased. Therefore, debit M’s Capital with $36,200.
- Loss on sale of inventory is a component of stockholders’ equity and it is increased. Therefore, credit loss on sale of inventory with $217,200.
To record the cash paid by Partner K to compensate the deficit:
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Cash | 15,600 | ||
K’s Capital | 15,600 | ||
(To record the payment of cash by Partner K to compensate the deficit) |
Table (11)
- Cash is an asset account and it is increased. Therefore, debit cash with $15,600.
- K’s Capital is a capital account and it is increased. Therefore, credit K’s Capital with $15,600.
(c) To record the payment of liabilities at book value.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Accounts payable | 245,500 | ||
Cash | 245,500 | ||
(To record the payment of liabilities at book value) |
Table (12)
- Accounts payable is a liability account and it is decreased. Therefore, debit accounts payable with $245,500.
- Cash is an asset account and it is decreased. Therefore, credit cash account with $245,500.
(d) To record the distribution of cash:
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
C’s Capital | 140,100 | ||
M’s Capital | 130,800 | ||
Cash (3) | 270,900 | ||
(To record the distribution of cash) |
Table (13)
- C’s Capital is a capital account and it is decreased. Therefore, debit C’s Capital with $140,100.
- M’s Capital is a capital account and it is decreased. Therefore, debit M’s Capital with $130,800.
- Cash is an asset account and it is decreased. Therefore, credit cash account with $270,900.
Working note:
Calculate the amount of cash for distribution:
(4)
Prepare the journal entry if the inventory is sold at $250,000 and partners with deficits do not pay their deficits.
(4)
Explanation of Solution
(a) To record the sale of inventory.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Cash | 250,000 | ||
Loss on sale inventory | 287,200 | ||
Inventory | 537,200 | ||
(To record the sale of inventory and loss on sale of inventory) |
Table (14)
- Cash is an asset account and it is increased. Therefore, debit cash with $250,000.
- Inventory is an asset account and it is decreased. Therefore, credit cash with $537,200.
- Loss on sale of inventory is a component of stockholders’ equity and it is decreased. Therefore, debit loss on sale of inventory with $287,200.
(b) To record the allocation of loss on sale of inventory to the partners’ capital account.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
K’s Capital | 143,600 | ||
C’s Capital | 95,733 | ||
M’s Capital | 47,867 | ||
Loss on sale of inventory | 287,200 | ||
(To record the allocation of loss on sale of inventory to the partners’ capital account) |
Table (15)
- K’s Capital is a capital account and it is decreased. Therefore, debit K’s Capital with $143,600.
- C’s Capital is a capital account and it is decreased. Therefore, debit C’s Capital with $95,733.
- M’s Capital is a capital account and it is decreased. Therefore, debit M’s Capital with $47,867.
- Loss on sale of inventory is a component of stockholders’ equity and it is increased. Therefore, credit loss on sale of inventory with $287,200.
To record the cash paid by Partner C and Partner M to compensate the deficit of Partner K:
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
C’s Capital | 33,733 | ||
M’s Capital | 16,867 | ||
K’s Capital | 50,600 | ||
(To record the payment of cash by Partner C and M to compensate the deficit of Partner K) |
Table (16)
- C’s Capital is a capital account and it is decreased. Therefore, debit C’s Capital with $33,733.
- M’s Capital is a capital account and it is decreased. Therefore, debit M’s Capital with $16,867.
- K’s Capital is a capital account and it is increased. Therefore, credit K’s Capital with $50,600.
(c) To record the payment of liabilities at book value.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Accounts payable | 245,500 | ||
Cash | 245,500 | ||
(To record the payment of liabilities at book value) |
Table (17)
- Accounts payable is a liability account and it is decreased. Therefore, debit accounts payable with $245,500.
- Cash is an asset account and it is decreased. Therefore, credit cash account with $245,500.
(d) To record the distribution of cash:
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
C’s Capital | 83,034 | ||
M’s Capital | 102,266 | ||
Cash (4) | 185,300 | ||
(To record the distribution of cash) |
Table (18)
- C’s Capital is a capital account and it is decreased. Therefore, debit C’s Capital with $83,034.
- M’s Capital is a capital account and it is decreased. Therefore, debit M’s Capital with $102,266.
- Cash is an asset account and it is decreased. Therefore, credit cash account with $185,300.
Working note:
Calculate the amount of cash for distribution:
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Chapter 12 Solutions
Principles of Financial Accounting.
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- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College