Reference no: EM133141654
Question - Comprehensive Problem: Lump sum liquidation - Padilla, Santos and Ravena are partners in a law firm. They share profits and losses in a 5:3:2 ratio. The partnership agreement provided for annual salaries of P400,000, P350,000 and P300,000, respectively, 5% interest on their January 1 capital balances and any balance to be divided in the profit and loss ratio.
The partners' capital balances as of January 1, 2020 were Padilla, P1,200,000; Santos, P750,000; and Ravena, P500,000. No additional investments were made during the year. Profit for 2020 was P1,600,000. Partners' withdrawals for the year were as follows: Padilla, P500,000; Santos, P400,000; and Ravena, P350,000.
On March 4, 2021, the partners decided to liquidate their law firm. On that date, the firm has a cash balance of P460,000, non-cash assets of P2,740,000 and liabilities of P400,000. No additional investments and withdrawals have been made in 2021. Between March 5 and March 31, the non-cash assets are sold for P2,900,000, the gain to be divided in the profit and loss ratio. The liabilities are paid and the remaining cash is then distributed to the partners.
Required - Prepare the journal entries as at March 31, 2021 for the following:
a. Sale of non-cash assets
b. Distribution of gain on realization
c. Payment of liabilities
d. Distribution of remaining cash to the partners
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