Accounting cycle of final operating period must be

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Accounting cycle of final operating period must be completed before liquidation begins which includes preparation of adjusting entries, a trial balance, financial statements, closing entries and post-closing trial balance. Only balance sheet accounts should be open as liquidation process begins. Liquidation of partnership requires these steps: 1. Sell noncash assets for cash and recognize any gain or loss on realization. a. The sale of noncash assets for cash is called realization. Difference between net book value and cash proceeds is called gain/loss on realization. 2. Allocate any gain/loss on realization to partners based on their income ratios 3. Pay partnership liabilities in cash 4. Distribute the remaining cash to partners based on their capital balances.
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When a partnership is liquidated, all partners may have credit balances in their capital accounts. This situation is called no capital deficiency . Alternatively, one or more partners’ capital accounts may have a debit balance. This situation is called capital deficiency. No Capital Deficiency Partners liquidate on the following terms: - Assets will be sold for $75,000 cash - Partnership will pay liabilities - Income ratios of the partners is 3:2:1 Steps of liquidation is the following: 1. Non Cash assets (Accounts receivable, Inventory, Equipment) are sold on April 18 for $75,000. Net book value is $60,000 ($15,000 + $18,000 + $35,000 - $8000) and it was sold for $75,000 so realization of $15,000 is made 2. Gain on realization is allocated to partners based on income ratios of 3:2:1 3. Partnership liabilities are Notes Payable of $15,000 and Accounts Payable of $16,000. Creditors are paid on April 23 a. Debit liabilities, credit cash of total liabilities ($31,000)
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4. Remaining balance is distributed on April 25 based on capital balances. All partnership accounts are currently closed except cash and all capital accounts. Balances are as followed Entry to record distribution of cash on April 25: Cash cannot be distributed on basis of income-sharing ratio because the capital represents the stake owners have on business and should be compensated accordingly. Capital Deficiency Capital deficiency is caused by recurring net losses, excessive drawings and losses from realization during liquidation. Following steps occur:
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Division of Net Income (PROBLEM) On January 1st,
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