Question

Lui, Montavo, and Johnson plan to liquidate their Premium Pool and Spa business. They have always shared profit and losses in a 1:4:5 ratio, and on the day of the liquidation their balance sheet appeared as follows:

$ 71,250 $600,750 143,000 457,750 $529,000 Premium Pool and Spa Balance Sheet June 30, 2020 Assets Cash Machinery Less: Accumulated depreciation Total assets Liabilities Accounts payable Equity Jim Lui Kent Montavo, capital Dave Johnson, capital Total equity Total liabilities and equity $137,500 $ 76,900 201,500 113,100 391,500 $529,000

Answer 1

1.

a.	Premium Pool and Spa
	June 30, 2020
		Cash	Machinery	Accum. Deprec. Machinery	Accounts Payable	Jim Lui, Capital	Kent Montavo, Capital	Dave Johnson, Capital
	Account balance June 30, 2020	71250	600750	-143000	137500	76900	201500	113100
	Sale of machinery for $500000	500000	-600750	143000	0	4225	16900	21125
	Balance	571250	0	0	137500	81125	218400	134225
	Payment of liabilities	-137500			-137500	0	0	0
	Balance	433750			0	81125	218400	134225
	Distribution of cash to partners	-433750				-81125	-218400	-134225
	Balance	0				0	0	0
b.	Premium Pool and Spa
	June 30, 2020
		Cash	Machinery	Accum. Deprec. Machinery	Accounts Payable	Jim Lui, Capital	Kent Montavo, Capital	Dave Johnson, Capital
	Account balance June 30, 2020	71250	600750	-143000	137500	76900	201500	113100
	Sale of machinery for $387000	387000	-600750	143000	0	-7075	-28300	-35375
	Balance	458250	0	0	137500	69825	173200	77725
	Payment of liabilities	-137500			-137500	0	0	0
	Balance	320750			0	69825	173200	77725
	Distribution of cash to partners	-320750				-69825	-173200	-77725
	Balance	0				0	0	0
c.	Premium Pool and Spa
	June 30, 2020
		Cash	Machinery	Accum. Deprec. Machinery	Accounts Payable	Jim Lui, Capital	Kent Montavo, Capital	Dave Johnson, Capital
	Account balance June 30, 2020	71250	600750	-143000	137500	76900	201500	113100
	Sale of machinery for $207000	207000	-600750	143000	0	-25075	-100300	-125375
	Balance	278250	0	0	137500	51825	101200	-12275
	Payment of liabilities	-137500			-137500	0	0	0
	Balance	140750			0	51825	101200	-12275
	Johnson pays deficiency	12275				0	0	12275
	Balance	153025				51825	101200	0
	Distribution of cash to partners	-153025				-51825	-101200
	Balance	0				0	0
d.	Premium Pool and Spa
	June 30, 2020
		Cash	Machinery	Accum. Deprec. Machinery	Accounts Payable	Jim Lui, Capital	Kent Montavo, Capital	Dave Johnson, Capital
	Account balance June 30, 2020	71250	600750	-143000	137500	76900	201500	113100
	Sale of machinery for $199000	199000	-600750	143000	0	-25875	-103500	-129375
	Balance	270250	0	0	137500	51025	98000	-16275
	Payment of liabilities	-137500			-137500	0	0	0
	Balance	132750			0	51025	98000	-16275
	Allocation of deficiency	0				-3255	-13020	16275
	Balance	132750				47770	84980	0
	Distribution of cash to partners	-132750				-47770	-84980
	Balance	0				0	0

The deficit in Johnson's capital account is borne by Lui and Montavo in their profit sharing ratio of 1 : 4.

2.

Date	General Journal	Debit	Credit
June 30, 2020	Jim Lui, capital	81125
	Kent Montavo, capital	218400
	Dave Johnson, capital	134225
	Cash		433750
	(To record the final distribution of cash)