Part A (2019)


Partnership A, B, and C is a law firm. You have been engaged as accountant to prepare financial statements for the year ended December 31, 2019.

The partnership’s trial balance is shown on the “2019 Tr. Bal.” page (see tab below). ‘Salary expenses’ listed on the trial balance are each partners’ withdrawals for the year.

Partnership profits are allocated based first on salaries, then on interest on opening capital balances, then on a fixed ratio.

Salary allocation amounts are:

  A $100,000
  B $100,000
  C $160,000


Opening capital balances are:

  A $70,000
  B $60,000
  C $70,000


Interest rate is: 5%

The fixed ratio is:

  A 2
  B 3
  C 5



  1. Prepare year-end adjusting entries. No descriptions are necessary.
  2. Allocate partnership profit or loss to each partner. Prepare the necessary adjusting entry.
  3. Post the adjusting entries and complete the trial balance.
  4. Prepare an income statement and statement of partners’ capital for the year ended December 31, 2019 and a balance sheet at December 31.


Part B (2020)

a. On December 31, 2020 new partner D invests other assets into the partnership for a one-quarter ownership interest. An equal amount of capital is contributed by A, B, and C to make up the difference. At December 31, 2020, the partners’ capital balances are as follows:


  A $200,000
  B 180,000
  C 190,000


Fair value of other assets from D             $50,000

b. Immediately after this, partner C withdraws from the partnership. She is paid in cash the balance in her capital account plus a bonus, contributed equally from the capital balances of A, B, and D.

Bonus paid to C                  $18,000



  1. Prepare necessary adjusting entries at December 31, 2020 to record the admission of partner D and the withdrawal of partner C. Show all calculations.


Part C (2021 and 2022)

The trial balance of A, B, and D at December 31, 2021 after all adjustments have been made is as follows:


Adjusted Balances
Account Title Debit Credit
Cash 83,000  
Other Assets 80,000  
Accounts Payable   140,000
A, Capital   7,000
B, Capital   7,000
C, Capital   9,000
163,000 163,000


On January 1, 2022 the partnership is liquidated.

Other assets are sold for: $144,000

Gains and losses are liquidated in a ratio of:

    A 3
    B 2
    D 5



6 Print out the “Part. Liqu.” page (see tab below). Complete the schedule. Assume any partner deficiency (debit balance) is repaid with cash by the applicable partner.

7 Prepare the journal entries to record the liquidation.



A, B, and C
Description Debit Credit


A B C Total
Amount of profit
Salary allocation
Interest allocation:
Opening cap.
Fixed ratio allocation
Allocated to partners


A, B, and C
Trial Balance
At December 31, 2019
Adjusted Balances
Unadjusted Balances Adjusting Entries
Account Title Debit Credit # Debit Credit # Debit Credit
Cash 60,000
Accounts Receivable 300,000
Accounts Payable 60,000
A, Capital 160,000
A, Withdrawals
B, Capital 110,000
B, Withdrawals
C, Capital 150,000
C, Withdrawals
Income Summary
Fees Revenue 720,000
Office Expense 500,000
Salaries Expense – A 110,000
Salaries Expense – B 110,000
Salaries Expense – C 120,000
1,200,000 1,200,000


A, B, and C
Income Statement
For the Year Ended December 31, 2019




A, B, and C
Statement of Partners’ Capital
For the Year Ended December 31, 2019
A B C Total
Bal. at Jan 1, 2019
Bal. at Dec. 31, 2019


A, B, and C
Balance Sheet
At December 31, 2019
Assets Liabilities
Partners’ Equity


A, B, and D
Statement of Partnership Liquidation
For the Day Ending January 1, 2022
Other assets Accounts payable
Cash Partners’ capital
Opening balance
Allocation of gain (loss)
Amount Ratio

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