The Balance Sheet of Ryan and Peter Firm as on December

question 135

Multiple Choice

The balance sheet of Ryan and Peter firm as on December 31, 2014, is given below. $$\begin{array} { | l | r | l | r | } \hline { \text { Assets } } & &{ \text { Liabilities } } & \\\hline \text { Cash } & \$ 15,000 & \text { Accounts Payable } & \$ 15,000 \\\hline \text { Accounts Receivable } & 12,000 & \text { Other liabilities } & 25,000 \\\hline \text { Furniture } & 25,000 & \text { Partner's Equity } & \\\hline \text { Equipment } & 40,000 & \text { Ryan, Capital } & 30,000 \\\hline \text { Other assets } & \underline { 8,000 } & \text { Peter, Capital } & \underline { 30,000 } \\\hline \text { Total assets } & \$ 100,000 & \text { Total liabilities and partner's equity } & \$ 100,000 \\\hline\end{array}$$ Ryan and Peter share profits in the ratio 3:2. They have decided to liquidate the partnership with immediate effect. They sold the furniture and equipment for $70,000. Which of the following is the correct journal entry for the sale transaction?

• A) \[\begin{array} { | c | r | r | }
• \hline \text { Cash } & 65,000 & \\
• \hline \text { Furniture } & & 25,000 \\
• \hline \text { Equipment } & & 40,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | r | r | }
• \hline \text { Cash } & 70,000 & \\
• \hline \text { Furniture } & & 25,000 \\
• \hline \text { Equipment } & & 40,000 \\
• \hline \text { Gain on Disposal } & & 5,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | r | r | }
• \hline \text { Loss on Disposal } & 5,000 & \\
• \hline \text { Cash } & 70,000 & \\
• \hline \text { Furniture } & & 25,000 \\
• \hline \text { Equipment } & & 50,000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | r | r | }
• \hline \text { Liquidation account } & 135,000 & \\
• \hline \text { Cash } & & 70,000 \\
• \hline \text { Furniture } & & 25,000 \\
• \hline \text { Equipment } & & 40,000 \\
• \hline
• \end{array}\]

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Definitions:

Legal Capital

The portion of a company's equity that cannot legally be distributed to its shareholders and must be maintained as a protective measure for creditors.

Secondary Market

The secondary market is where investors buy and sell securities they own from each other, rather than directly from the issuing company, including stock exchanges and over-the-counter markets.

Stock Exchange

A marketplace where stocks and other securities are bought and sold, facilitating the transfer of securities among investors.

Initial Public Offering

The first sale of stock by a private company to the public, typically used to raise capital for expansion.