Question

Lul, 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: $ 69,250 $592,750 139, eee 453,750 $ 523,eee 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 $ 132,700 $ 76,500 201,102 112,700 390,300 $523,000 Required: 1. Under the assumption that the machinery is sold and the cash is distributed to the proper parties on June 30, 2020, complete the schedule provided below. Show the sale, the gain or loss allocation, and the distribution of the cash in each of the following unrelated cases: a. The machinery is sold for $492,000. (Negative answers should be indicated by a minus sign.) Cash Premium Pool and Spa June 30, 2020 Accum. Machinery Deprec., Machinery S 592.750 $ (139,000) (582.750) 139,000 Accounts Payable Jim Lui, Capital Kent Montavo, Capital S 201,100 Dave Johnson, Capital $ 112,700 S S 132,700 $ 69.250 492.000 76,500 38,250 0 Account balances June 30, 2020 Sale of Machinery for $492,000 Balance Payment of liabilities Balance Distribution of cash to partners Balance

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	69250	592750	-139000	132700	76500	201100	112700
	Sale of machinery for $492000	492000	-592750	139000	0	3825	15300	19125
	Balance	561250	0	0	132700	80325	216400	131825
	Payment of liabilities	-132700			-132700	0	0	0
	Balance	428550			0	80325	216400	131825
	Distribution of cash to partners	-428550				-80325	-216400	-131825
	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	69250	592750	-139000	132700	76500	201100	112700
	Sale of machinery for $379000	379000	-592750	139000	0	-7475	-29900	-37375
	Balance	448250	0	0	132700	69025	171200	75325
	Payment of liabilities	-132700			-132700	0	0	0
	Balance	315550			0	69025	171200	75325
	Distribution of cash to partners	-315550				-69025	-171200	-75325
	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	69250	592750	-139000	132700	76500	201100	112700
	Sale of machinery for $211000	211000	-592750	139000	0	-24275	-97100	-121375
	Balance	280250	0	0	132700	52225	104000	-8675
	Payment of liabilities	-132700			-132700	0	0	0
	Balance	147550			0	52225	104000	-8675
	Johnson pays deficiency	8675				0	0	8675
	Balance	156225				52225	104000	0
	Distribution of cash to partners	-156225				-52225	-104000
	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	69250	592750	-139000	132700	76500	201100	112700
	Sale of machinery for $191000	191000	-592750	139000	0	-26275	-105100	-131375
	Balance	260250	0	0	132700	50225	96000	-18675
	Payment of liabilities	-132700			-132700	0	0	0
	Balance	127550			0	50225	96000	-18675
	Allocation of deficiency*	0				-3735	-14940	18675
	Balance	127550				46490	81060	0
	Distribution of cash to partners	-127550				46490	81060
	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	80325
	Kent Montavo, capital	216400
	Dave Johnson, capital	131825
	Cash		428550
	(To record the final distribution of cash)