Examkin

Question

Difficulty: EasyDissolution of Partnership and Realization Account

Match each transaction occurring during the dissolution of a partnership to its correct accounting entry in the ledger.

  • Transfer of book values of assets to Realization AccountDebit Realization Account, Credit Sundry Asset Accounts
  • Receipt of cash from the sale/realization of assetsDebit Cash/Bank Account, Credit Realization Account
  • Payment of dissolution expenses in cashDebit Realization Account, Credit Cash/Bank Account
  • Distribution of profit on realization to partnersDebit Realization Account, Credit Partners' Capital Accounts

Answer

Transfer of asset book values matches Debit Realization Account, Credit Sundry Asset Accounts; Receipt of cash from realized assets matches Debit Cash/Bank Account, Credit Realization Account; Payment of dissolution expenses matches Debit Realization Account, Credit Cash/Bank Account; Distribution of realization profit matches Debit Realization Account, Credit Partners' Capital Accounts.
Each transaction follows standard double-entry principles for partnership dissolution: transferring asset book values closes asset accounts via debit to Realization and credit to Assets; cash proceeds from asset sales increase cash (debit Cash/Bank) and credit Realization; paying realization costs decreases cash (credit Cash/Bank) and debits Realization; and sharing realization profit increases partner capital balances (credit Partners' Capital) by debiting the balance of the Realization Account.

Step-by-Step Solution

1
Identify the double-entry rule for closing assets upon dissolution
Assets are closed by crediting the specific asset accounts and debiting the Realization Account with their book value.
This transfers asset values to a temporary realization account to compute net gain or loss upon winding up.
2
Determine the entries for asset proceeds and dissolution expenses
Cash inflows debit Cash/Bank and credit Realization. Cash outflows for dissolution costs credit Cash/Bank and debit Realization.
Realization account acts as a summary profit/loss account specifically for the winding up process.
3
Determine the entry to close a profit on realization
The excess of credits over debits in Realization is cleared by debiting Realization Account and crediting Partners' Capital Accounts.
Profits belong to the partners and increase their final capital balances.

Key Concept

Ledger entries for partnership dissolution and realization account preparation
Estimated Time:1m 0s
Rate this question

Topics

Dissolution of Partnership and Realization Account

More questions from this topic