Peters, Chong, and Aaron Are Dissolving Their Partnership

question 139

Multiple Choice

Peters, Chong, and Aaron are dissolving their partnership. Their partnership agreement allocates each partner an equal share of all income and losses. The current period's ending capital account balances are Peters, $54,000; Chong, $42,000; and Aaron, $(2,000) . After all assets are sold and liabilities are paid, there is $94,000 in cash to be distributed. Aaron is unable to pay the deficiency. The journal entry to record the distribution should be:

• A) Debit Peters, Capital $54,000; debit Chong, Capital $40,000; credit Cash $94,000.
• B) Debit Peters, Capital $53,000; debit Chong, Capital $41,000; credit Cash $94,000.
• C) Debit Cash $94,000; credit Peters, Capital $47,000; credit Chong, Capital $47,000.
• D) Debit Cash $94,000, debit Aaron, Capital $2,000, credit Peters, Capital $54,000, credit Chong, Capital $42,000.
• E) Debit Peters, Capital $54,000; debit Chong, Capital $42,000; credit Cash $96,000.

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Definitions:

Lessor

An entity or individual that leases an asset to a lessee, retaining ownership of the asset while granting usage rights for a specified period under agreed conditions.

Lessee

The party that is granted the right to use an asset for a specified period through a lease agreement.

Lessor

The party that rents out an asset or property to another party, known as the lessee.

Pre-tax Cost

The cost of an investment or financial activity before any taxes are applied.