J. Morgan and M. Halsted are partners who share income and loss in a 3:1 ratio. After several profitable periods, the two partners decided to liquidate their partnership. The current period's income or loss is closed to the partners' capital accounts according to the sharing agreement. Immediately before liquidation, the partnership balance sheet shows: land, $100,000; accounts payable, $80,000; J. Morgan, Capital, $15,000; and M. Halsted, Capital, $5,000. On January 15, the land was sold for $110,000 cash. On January 16, the partnership settled its liabilities. On January 31, the remaining cash was distributed to the partners. Prepare the January 15 journal entry for the partnership to record the allocation of the gain or loss from liquidation to the partners.

To record the allocation of gain or loss on January 15, first we must determine how much is the gain or loss during the transaction. The land has a value of $100,000 and it was sold for $110,000 which is above its cost. As a result, the land was sold at gain. $110,000 less the value of $100,000, the gain on sale is $10,000

The allocation of it is based on their 3:1 ratio:

Morgan $10,000 x 3/4 = $7,500

Halsted $10,000 x 1/4 = $2,500

So to close it to the partner's capital, we will debit Gain on sale $10,000 and credit J. Morgan capital $7,500 and another credit to M. Halsted capital $2,500.