Each partner’s share of gains realized on the sale of assets is recorded as an increase in his/her capital account. If the other assets are sold for $42,000, the following entry is prepared to record the gain.
The $10,000 gain is then divided among the partners in their 5:3:2 profit and loss sharing ratio:
The liabilities are then paid; the journal entry to record the payment follows.
At this point, the balance sheet would show:
The following entry is prepared to record payment of the three capital account balances and complete the liquidation of the partnership:
Note that all capital account balances are zero following the distribution of cash.
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