Lesson Plan 7. 1 – Partnerships
Course Title: Accounting II
Lesson Title: Accounting for Partnerships and Not-for-Profit Organizations
Lessons and Activities
Specific Objective – Understand and apply concepts and procedures related
to accounting for partnerships.
Performance Objectives:
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List the major characteristics of a partnership;
Identify the advantages and disadvantages of a partnership;
Identify accounting concepts and practices related to forming and expanding
a partnership;
Journalize transactions involving partners’ equity;
Journalize the entries required when a partnership dissolves;
Journalize entries for the sale of assets when a partnership is liquidated;
List five methods of distributing a partnership’s net income or loss;
Calculate the distribution of partnership earnings;
Journalize entries for withdrawal of partnership earnings;
Journalize the closing entries to divide net income or loss amount partners;
Prepare the financial statements for a partnership;
Define accounting terms related to the lesson.
TEKS: 130.167.c:
2 – performs accounting functions specific to a corporation
4.A.-D – explain the nature of annual reports; discuss the use of financial ratios in
accounting; determine business liquidity; and calculate business profitability.
TAKS: R1, M10
Preparation
Materials Needed:
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Projection system
Glencoe’s Textbook, Chapter 14 and 15, and Demonstration Problems
Century 21’s Textbook, Chapter 21 and 22.
Accounting software and spreadsheet software.
Sponge/Focus Activity:
Lesson Plan 7.1 – Partnerships
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
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Remind your students that some businesses might be organized as
partnerships, so it is important they learn the accounting procedures for
partnerships. You might even have your students think of some local
businesses that might be organized as partnerships.
Exploring the Real World of Business, in Glencoe’s Textbook
A possible end of class activity is to give each student a 3 x 5 card and give
them several minutes to answer the following question:
o “What is the most important item you learned today?” Have them turn
in the 3 x 5 card before they leave class. (You can use this activity
whenever you want feedback on what your students learned.)
Lesson Content:
See Glencoe’s Textbook, Chapter 14 and 15, or Century 21’s Textbook, Chapter
21 and 22. Here is an outline:
I.
Partnership: formation, dissolution, and liquidation
A. Accounting for a partnership
1.
Characteristics of a partnership
i.
Co-Ownership of partnership property
ii.
Limited life
iii.
Unlimited liability
iv.
Mutual agency
2.
Advantages of a partnership
3.
Disadvantages of a partnership
4.
The Partnership agreement
5.
Accounting for partnership owners’ equity
i.
Recording the partners’ investments
ii.
Recording additional investments
B. Dissolution of a partnership
1.
Dissolving a partnership
i.
Admission of a new partner
 Purchase of a partnership interest with no increase
in capital
 Investment of assets by a new partner
ii.
Withdrawal of a partner
 Partner withdraws an amount equal to the capital
account balance
 Partner withdraws for an amount greater than the
capital account
 Partner withdraws an amount less than the capital
account balance
iii.
Death of a partner
C. Liquidation of a partnership
1.
Partnership liquidation process
i.
Gain on sale of assets
ii.
Loss on sale of assets
Lesson Plan 7.1 – Partnerships
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
II.
Partnerships: Division of profits and losses
A. Dividing profit and losses
1.
Dividing net income or loss
i.
Dividing net income or loss equally
ii.
Dividing net income or loss on a fractional-share basis
iii.
Dividing net income or loss on the ratio of capital
investments basis
B. Dividing profits and losses based on salary or interest allowances
1.
Salary and interest allowances
i.
Dividing net income or loss based on salary
allowances
ii.
Dividing net income or loss based on interest
allowances
C. Preparing financial statements for a partnership
1.
Income statement
2.
Statement of changes in partners’ equity
3.
Balance sheet
Teaching Strategies:
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Look at a chart of accounts for a partnership; discuss the differences in the
partnership’s chart of accounts and a corporation’s chart of accounts.
Review the accounting cycle for a corporation and explain the differences
between the accounting cycle for a corporation and a partnership.
Show your students the financial statements for a Partnership; discuss the
differences in the partnership’s financial statements and a corporation’s
financial statements.
Glencoe’s Demonstration Problems.
With the Century 21 textbook, you do the Work Together problems together,
and then with On Your Own give your students time to do the problem and
then go over the problem with the class.
Assessment:
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For problems you can use Peachtree Accounting from Glencoe, Glencoe
Accounting Software, Century 21 Accounting Software, or a spreadsheet.
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From Glencoe’s Textbook Problems
o Guided Practice
 14-1 Calculating Initial Investments by Partners
 14-2 Determining Total Equity after a Partner’s Withdrawal
 15-1 Dividing Net Income on the Ratio of Capital
Investments Basis
 15-2 Analyzing a Source Document
 15-3 Distribution of Net Income
 15-4 Preparing a Statement of Changes in Partners’ Equity
o Independent Practice
 14-4 Recording Partners’ Initial Investments
 14-5 Admitting a New Partner
Lesson Plan 7.1 – Partnerships
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
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14-6 Recording the Withdrawal of a Partner
14-7 Recording a Partners’ Equity
14-8 Journalizing and Posting the Entries for a Liquidation
14-9 Recording Entries at the Death of a Partner
15-5 Allocating Net Income Based on Salary Allowances
15-6 Distributing Partnership Earnings on a Fractional-Share
Basis
 15-7 Allocating Net Income Based on Interest Allowances
 15-8 Allocating Net Income on the Ratio of Capital
Investment Basis
 15-9 Distributing a Net Loss Based on Salary and Interest
Allowances
 15-10 Allocating Partnership Earnings and Preparing a
Statement of Changes in Partners’ Equity
o Additional Activities:
 Using Key Terms
 Understanding Accounting Concepts and Procedures
 Case Study
 Conducting an Audit with Alex
 Internet Connection
 Workplace Skills
o Open Notes and textbook Quiz: Study Guide for Chapters
From Century 21’s Textbook
o Guided Practice
 Work Together: Forming a Partnership
 On Your Own: Forming a Partnership
 Work Together: Admitting partners to existing partnerships
 On Your Own: Admitting partners to existing partnerships
 Work Together: Calculating partnership earnings and
journalizing partnerships withdrawals
 On Your Own: Calculating partnership earnings and
journalizing partnerships withdrawals
 Work Together: End-of-fiscal-period-work for a partnership
 On Your Own: End-of-fiscal-period-work for a partnership
 Work Together: Liquidation of a partnership
 On Your Own: Liquidation of a partnership
o Independent Practice
 21-1 Forming a partnership
 21-2 Admitting a partner with no change in total equity
 21-3 Admitting a partner with equity equal to new partner’s
investment
 21-4 Admitting a partner with equity greater than new
partner’s investment
 21-5 Admitting a partner when goodwill is recognized
 21-6 Forming and expanding a partnership
 21-7 Forming and expanding a partnership
Lesson Plan 7.1 – Partnerships
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
 22-1 Calculating partnership earnings
 22-2 Journalizing partners’ withdrawals
 22-3 Completing end-of-fiscal-period work for a partnership
 22-4 Liquidating a partnership
 22-5 Completing end-of-fiscal-period work for a partnership
 22-6 Completing end-of-fiscal-period work for a partnership
o Additional Activities
 Applied Communication and Cases for Critical Thinking
o Open Notes and textbook Quiz: Study Guide for Chapters
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This lesson is also assessed through the Lesson Test at the end of the
Lesson.
Additional Resources:
Textbooks:
Guerrieri, Donald J., F. Barry Haber, William B. Hoyt, and Robert E. Turner,
Glencoe Accounting Real-World Applications & Connections, Advanced
Course, Fourth Edition, Glencoe McGraw-Hill: New York, New York.
Ross, Kenton E., CPA, Mark W. Lehman, CPA, Claudia Bienias Gilbertson, CPA,
Robert D. Hanson, Century 21 Accounting Advanced, Anniversary Edition,
Thomson South-Western: Mason, OH, 2003.
Takin’ Care of Business, Education Handbook, American Institute of Certified
Public Accountants, 1211 Avenue of the Americas, New York, NY 100368775, www.aicpa.org.
Multimedia:
Century 21’s Teacher Resource CD
Websites:
http://accounting.swpco.com
Lesson Plan 7.1 – Partnerships
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
Activity 7.1.1 - Performance Task –
Division of Profits and Losses
Course Title – Accounting II
Lesson Title – Performance Task – Division of Profits and Losses
Specific Objective –
The student applies related accounting procedures to the division of profits and
losses.
TEKS: 130.167.c.:
2. – The student performs accounting functions specific to a corporation
4.A.-D. – explain the nature of annual reports; discuss the use of financial ratios
in accounting; determine business liquidity; and calculate business profitability.
TAKS: R1, M1
Preparation
Materials Needed:
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Accounting software
Presentation system
Teaching Strategies:
Students learn different ways partnerships can divide profits and losses.
Students create partnerships, write transactions for partnership, journalize the
transactions, and prepare end-of-period entries to divide the net income or net
loss of the organization.
Activity Outline:
1. Teacher directs instruction and models examples of the following division of
partnership profits and losses:
• Sharing based on stated fractions
• Sharing based on partners’ capital contribution
• Sharing based on capital contribution and service to partnership
• Sharing based on salaries and interest
2. Divide students in teams or pairs. Have them draw for one of the ways of
dividing profits and losses
3. Students create transactions for partnership. Transactions must include
• investments of assets,
• creation of liabilities for business, and
• records of expenses incurred and revenue earned.
Activity7.1.1 –Performance Task –
Division of Profits and Losses
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
4. Students journalize the transactions, and end-of-period entries must be made
to divide the net income or net loss among the partners.
Assessment:
Division of Profits and Losses Rubric
Performance
Element
Exemplary
Acceptable
Unacceptable
Student participates
in teacher instruction
and modeling of
examples for
divisions of profits
and losses for
partnerships.
(10 pts.)
Student participated
in teacher instruction
and modeling of
examples of divisions
of profits and losses
for partnerships by
taking notes, working
examples, and asking
questions. (10 pts.)
Student participated
in teacher instruction
and modeling of
examples of divisions
of profits and losses
for partnerships
except on one of the
methods. (7 pts.)
Student did not
participate in teacher
instruction and
modeling of
examples of divisions
of profits and losses
for partnerships by
taking notes, working
examples, or asking
questions. (0 pts.)
Student creates
transactions that
include investments
of assets, creation of
liabilities and records
of expenses incurred
and revenue earned
for partnership.
(30 pts.)
Student created
transactions that
included investments
of assets, creation of
liabilities and records
of expenses incurred
and revenue earned
for partnership.
(30 pts.)
Student takes
transactions through
accounting cycle.
(30 pts.)
Student took
transactions through
the accounting cycle
accurately and in
order. (30 pts.)
Student makes
presentation to
class of equity
accounts for
partnership and how
they are changed
through the division
of the profits or
losses. (30 pts.)
Student made
presentation to
class of equity
accounts for
partnership and how
they changed through
the division of profits
and losses. (30 pts.)
Activity7.1.1 –Performance Task –
Division of Profits and Losses
Student created
transactions that
included investments
of assets, creation of
liabilities, and omitted
the records of
expenses incurred
and revenue earned
for partnership.
(23 pts.)
Student took
transactions through
accounting cycle but
switched the order of
two steps. (23 pts.)
Student made
presentation to class
of equity accounts for
partnership and how
they changed through
the division of profits
and losses but two
errors were made.
(17 pts.)
Student did not
create transactions
for partnership for
division of profits and
losses. (0 pts.)
Student did not
participate in steps in
accounting cycle.
(0 pts.)
Student did not
participate in
presentation to class
of equity account
changes. (0 pts.)
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II