Prepare the journal entries for the liquidation of Esther Company, including the realization of assets, payment of liabilities, and distribution of cash to partners.

Here are the entries to record the transactions for the liquidation of Esther Company:

Part (a): Prepare the entries to record the transactions.

• Transaction 1: Conversion of noncash assets into cash and recognition of loss.

  • Book value of noncash assets:
    • Accounts Receivable (net): \25,000 - $1,000 = $24,000$
    • Merchandise Inventory: \34,500$
    • Equipment (net): \21,000 - $5,500 = $15,500$
    • Total Net Book Value: \24,000 + $34,500 + $15,500 = $74,000$
  • Cash received: \55,000$
  • Loss on realization: \74,000 - $55,000 = $19,000$
  $$\begin{array}{l r r} \text{Cash} & \$55,000 & \\ \text{Loss on Realization} & \$19,000 & \\ \text{Allowance for Doubtful Accounts} & \$1,000 & \\ \text{Accumulated Depreciation - Equipment} & \$5,500 & \\ \quad \text{Accounts Receivable} & & \$25,000 \\ \quad \text{Merchandise Inventory} & & \$34,500 \\ \quad \text{Equipment} & & \$21,000 \\ \quad \textit{(To record sale of noncash assets and loss on realization)} & & \\ \end{array}$$

• Transaction 2: Gain or loss on realization was allocated to partners.

  • Loss on realization: \19,000$
  • Partners' sharing ratio (Mantle:Mays:Sinder): 5:3:2
    • Mantle's share: \19,000 \times \frac{5}{10} = $9,500$
    • Mays' share: \19,000 \times \frac{3}{10} = $5,700$
    • Sinder's share: \19,000 \times \frac{2}{10} = $3,800$
  $$\begin{array}{l r r} \text{Mantle, Capital} & \$9,500 & \\ \text{Mays, Capital} & \$5,700 & \\ \text{D. Sinder, Capital} & \$3,800 & \\ \quad \text{Loss on Realization} & & \$19,000 \\ \quad \textit{(To allocate loss on realization to partners)} & & \\ \end{array}$$

• Transaction 3: Liabilities were paid in full.

  • Total Liabilities: Notes Payable (\13,500)$+ Accounts Payable$($27,000)$+ Wages Payable$($4,000) = $44,500$
  $$\begin{array}{l r r} \text{Notes Payable} & \$13,500 & \\ \text{Accounts Payable} & \$27,000 & \\ \text{Wages Payable} & \$4,000 & \\ \quad \text{Cash} & & \$44,500 \\ \quad \textit{(To record payment of liabilities)} & & \\ \end{array}$$

• Transaction 4: D. Sinder paid his capital deficiency.

  • Sinder's initial capital: \3,000$ (Cr)
  • Sinder's share of loss: (\3,800)$ (Dr)
  • Sinder's capital deficiency: \3,000 - $3,800 = -$800$ (Dr)
  $$\begin{array}{l r r} \text{Cash} & \$800 & \\ \quad \text{D. Sinder, Capital} & & \$800 \\ \quad \textit{(To record Sinder's payment of capital deficiency)} & & \\ \end{array}$$

• Transaction 5: Cash was paid to the partners with credits balances.

  • Mantle, Capital: \33,000 (initial) - $9,500 \text{ (loss)} = $23,500$
  • Mays, Capital: \21,000 (initial) - $5,700 \text{ (loss)} = $15,300$
  • Total cash distributed to partners: \23,500 + $15,300 = $38,800$
  $$\begin{array}{l r r} \text{Mantle, Capital} & \$23,500 & \\ \text{Mays, Capital} & \$15,300 & \\ \quad \text{Cash} & & \$38,800 \\ \quad \textit{(To record final distribution of cash to partners)} & & \\ \end{array}$$