Question

Morgan and M. Halsted are partners who share income and loss in a 3:1 ratio. After several unprofitable periods, the two partners decided to liquidate their partnership. The current period's income or loss is closed to the partners' capital accounts according to the sharing agreement. Immediately before liquidation, the partnership balance sheet shows: land, $100,000; accounts payable, $80,000; J. Morgan, Capital, $15,000; and M. Halsted, Capital, $5,000. On January 15, the land was sold for $110,000 cash. On January 16, the partnership settled its liabilities. On January 31, the remaining cash was distributed to the partners. Prepare the January 15 journal entry for the partnership to record the sale of the land.

Answer 1

Answer:

Debit Cash $110,000

Credit Land $100,000

Credit Gain on sale $10,000

Explanation:

On January 15, the partnership sold the land for $110,000, that is more than its cost of $100,000. In effect, the sale will result to a gain of $10,000 ($110,000 - $100,000). To record the said transaction, we must debit the cash that the partnership received in the amount of $110,000 and credit land $100,000 to remove it from the book and another credit to gain on sale in the amount of $10,000 to recognize the favorable sale.