NETA POWERPOINT PRESENTATIONS TO
ACCOMPANY
VOLUME 2
Accounting
Second Canadian Edition
BY WARREN/REEVE/DUCHAC/ELWORTHY/KRISTJANSON/TOBER
Adapted by Sheila Elworthy
and Tana Kristjanson
Copyright © 2014 by Nelson Education Ltd.
1
CHAPTER 11
Accounting for
Partnerships
Copyright © 2014 by Nelson Education Ltd.
2
Accounting for Partnerships
After studying this chapter, you should be able to:
1. Describe the characteristics of
proprietorships and partnerships.
2. Describe and illustrate the
accounting for forming a
partnership and for dividing the
net income and net loss of a
partnership.
Copyright © 2014 by Nelson Education Ltd.
3
Accounting for Partnerships
After studying this chapter, you should be able to:
3. Describe and illustrate the
accounting for partner admission
and withdrawal.
4. Describe and illustrate the
accounting for liquidating a
partnership.
5. Prepare the statement of changes
in partnership equity.
Copyright © 2014 by Nelson Education Ltd.
4
1
Describe the characteristics of
proprietorships and
partnerships.
Copyright © 2014 by Nelson Education Ltd.
5
Three Most Common Legal Forms of
Business
1. Proprietorship
2. Partnership
3. Corporation
Copyright © 2014 by Nelson Education Ltd.
6
Proprietorship
A proprietorship is a company
owned by a single individual.
1. Lawyers
2. Architects
3. Realtors
4. Physicians
Copyright © 2014 by Nelson Education Ltd.
7
Characteristics of a Proprietorship
1.
2.
3.
4.
5.
6.
Simple to form
No limitation on legal liability
Not taxable
Limited life
Limited ability to raise capital (funds)
Ownership rights are difficult to
transfer.
7. Payments to owners are Withdrawals.
Copyright © 2014 by Nelson Education Ltd.
8
General Partnerships
A partnership is an association of
two or more individuals who own
and manage a company for profit.
Less widely used than proprietorships.
Copyright © 2014 by Nelson Education Ltd.
9
Characteristics of a Partnership
1.
2.
3.
4.
5.
6.
Moderately complicated to form
No limitation on legal liability
Not taxable
Limited life
Limited ability to raise capital (funds)
Ownership rights are not easily
transferable.
7. Payments to owners are Withdrawals.
Copyright © 2014 by Nelson Education Ltd.
10
Unique Aspects of a Partnership
1. Co-ownership of partnership
property
2. Mutual agency
3. Participation in income
Copyright © 2014 by Nelson Education Ltd.
11
Forms of Partnership
In Canada, a partnership may take three
forms:
• General partnership (as previously
described)
• Limited partnership
• Limited liability partnership (LLP)
The accounting for all three is the same.
Copyright © 2014 by Nelson Education Ltd.
12
Limited Partnership
A limited partnership offers limited
liability to partners who in most cases
provide some funding but are not involved
in the day-to-day operations of the
partnership.
At least one general partner operates the
partnership and has unlimited liability.
The remaining partners are considered
limited partners.
Copyright © 2014 by Nelson Education Ltd.
13
Limited Liability Partnership (LLP)
A limited liability company (LLP)
protects partners from malpractice or
negligence claims caused by work of
one of their partners. While all
partners are still liable for other
partnership debts, debts that arise
due to specific work of a partner are
paid by that partner personally.
Copyright © 2014 by Nelson Education Ltd.
14
Corporations
A corporation is a legal entity that is
distinct and separate from the individuals
who create and operate it. As a legal
entity, a corporation may
• acquire, own, and dispose of property in
its own name,
• incur debts and enter into contracts,
and
• sell shares of ownership.
Copyright © 2014 by Nelson Education Ltd.
15
Copyright © 2014 by Nelson Education Ltd.
16
2
Describe and illustrate the
accounting for forming a
partnership and for dividing
the net income and net loss of
a partnership.
Copyright © 2014 by Nelson Education Ltd.
17
Forming a Partnership
Lara Greguric and Mike Belfry agree
to combine their hardware
businesses in a partnership. Each is
to contribute certain amounts of cash
and other assets. They also agree
that the partnership is to assume the
liabilities of the separate businesses.
Copyright © 2014 by Nelson Education Ltd.
18
The entry to record the assets and
liabilities contributed by Greguric is
as follows:
Copyright © 2014 by Nelson Education Ltd.
19
Forming a Partnership
In each entry, the noncash assets are
recorded at values agreed upon by
the partners. These values normally
represent current market values.
Copyright © 2014 by Nelson Education Ltd.
20
Forming a Partnership
To illustrate, store equipment
contributed by Belfry has a carrying
value of $22,000 but the partners
agreed that its market value is
$19,300. They also agree that some
of Belfry’s inventory is old and the
$12,500 amount listed is overvalued
by $1,500.
Copyright © 2014 by Nelson Education Ltd.
21
The entry to record the assets and
liabilities contributed by Belfry is as
follows:
Copyright © 2014 by Nelson Education Ltd.
22
EXAMPLE EXERCISE 11-1
Journalize Partners’ Original Investment
Reese Howell and Shelley Baker decided to form a
partnership. Reese Howell contributed equipment,
inventory, and $34,000 cash. The equipment had a
carrying value of $23,000 and a market value of
$29,000. The inventory had a carrying value of
$60,000, but had a market value of only $15,000
because of obsolescence. The partnership also
assumed a $12,000 note payable owed by Howell
that was used originally to purchase the equipment.
Copyright © 2014 by Nelson Education Ltd.
23
EXAMPLE EXERCISE 11-1
Journalize Partners’ Original Investment
Baker contributed equipment, inventory, and $8,000
cash to the partnership. The equipment had a
carrying value of $33,000 and a market value of
$18,000. The inventory had a market value of
$40,000.
Provide the journal entries for Howell’s and Baker’s
contributions to the partnership.
Copyright © 2014 by Nelson Education Ltd.
24
FOLLOW MY EXAMPLE 11-1
Journalize Partners’ Original Investment
For Practice: PE 11-1
Copyright © 2014 by Nelson Education Ltd.
25
Dividing Income
Common methods of dividing
partnership income are based on:
• Services of the partners
• Services and investments of the
partners
Copyright © 2014 by Nelson Education Ltd.
26
Dividing Income
Income or losses of partnership are
divided equally if no partnership
agreement exists or the partnership
agreement does not specify how the
division is to occur.
Copyright © 2014 by Nelson Education Ltd.
27
Dividing Income—Services of
Partners
The partnership agreement of Lara
Greguric and Mike Belfry provides for:
60% of any remaining net income is paid to
Greguric, and 40% to Belfry. The firm had a
net income of $150,000 for the year.
Copyright © 2014 by Nelson Education Ltd.
28
Division of Net Income
Copyright © 2014 by Nelson Education Ltd.
29
Withdrawals
If Greguric and Belfry withdraw funds
from the partnership throughout the
year, the withdrawals are debited to
their withdrawal accounts.
At the end of the year, the
withdrawal account debit balances
are closed to the partners’ capital
accounts.
Copyright © 2014 by Nelson Education Ltd.
30
Withdrawals
Assume Greguric and Belfry withdraw
funds equal to their allowances every
month. The entry for the January
withdrawal is as follows:
Copyright © 2014 by Nelson Education Ltd.
31
Withdrawals
If Greguric and Belfry withdrew funds
equal to their allowances each month,
then the entry for closing their withdrawal
accounts is as follows:
Copyright © 2014 by Nelson Education Ltd.
32
EXAMPLE EXERCISE 11-2
Dividing Partnership Net Income—Closing Entries
John Lee and Brett Young’s partnership agreement
provided a salary allowance of $80,000 and $75,000
to each partner, respectively, with any remaining net
income to be divided equally. During the year, both
partners withdrew $6,000 per month.
a. Determine the division of $200,000 net income
for the year.
b. Provide journal entries to close (1) the Income
Summary account and (2) the withdrawals
accounts for the two partners.
Copyright © 2014 by Nelson Education Ltd.
33
FOLLOW MY EXAMPLE 11-2
Dividing Partnership Net Income—Closing Entries
For Practice: PE 11-2
Copyright © 2014 by Nelson Education Ltd.
34
Dividing Income—Services of
Partners and Investments
The partnership agreement for Greguric
and Belfry divides income as follows:
• Monthly salary allowance of $5,000 for
Greguric and $4,000 for Belfry.
• Interest of 3% on each partner’s capital
balance on January 1.
• Remaining income: 60% to Greguric,
40% to Belfry.
Copyright © 2014 by Nelson Education Ltd.
35
Each partners’ annual salary is
calculated.
$5,000 × 12
$4,000 × 12
Copyright © 2014 by Nelson Education Ltd.
36
Interest on each partner’s January 1
capital balance is determined.
3% × Greguric’s capital account
balance on Jan. 1 of $56,200
Copyright © 2014 by Nelson Education Ltd.
37
Interest on each partner’s January 1
capital balance is determined.
3% × Belfry’s capital account balance
on Jan. 1 of $36,800
Copyright © 2014 by Nelson Education Ltd.
38
Interest on each partner’s January 1
capital balance is determined.
Copyright © 2014 by Nelson Education Ltd.
39
The remaining income is divided 60%
to Greguric, 40% to Belfry.
Copyright © 2014 by Nelson Education Ltd.
40
EXAMPLE EXERCISE 11-3
Dividing Partnership Net Income
Sarah Stephen and Xavier Williams formed a
partnership, dividing income as follows:
1. Annual salary allowance to Stephen of
$42,000.
2. Interest of 4% on each partner’s capital
balance on January 1.
3. Any remaining net income will be shared
by Stephen and Williams in a ratio of 1:3.
Copyright © 2014 by Nelson Education Ltd.
41
EXAMPLE EXERCISE 11-3
Dividing Partnership Net Income
Stephen and Williams had $20,000 and
$150,000 in their January 1 capital balances,
respectively. Net income for the year was
$240,000.
How much net income should be distributed
to Williams?
Copyright © 2014 by Nelson Education Ltd.
42
FOLLOW MY EXAMPLE 11-3
Dividing Partnership Net Income
For Practice: PE 11-3
Copyright © 2014 by Nelson Education Ltd.
43
Dividing Income—Allowances Exceed
Net Income
Assume the same facts as before for
Greguric and Belfry, except that the
net income is only $100,000. The
total of the salary ($108,000) and
interest ($2,790) is $110,790. In this
case, the total of the allowance
exceeds the net income by $10,790.
Copyright © 2014 by Nelson Education Ltd.
44
Net income of $100,000 is divided.
This amount exceeds net income by $10,790.
Copyright © 2014 by Nelson Education Ltd.
45
Net income of $100,000 is divided.
Copyright © 2014 by Nelson Education Ltd.
46
The entry for closing Income Summary and
dividing net income:
Copyright © 2014 by Nelson Education Ltd.
47
EXAMPLE EXERCISE 11-4
Dividing Partnership Net Income—Allowances Exceed Net Income
Use the information supplied in EE 11-3 for
Sarah Stephen and Xavier Williams, except for
net income. Assume the partnership had net
income for the year of $40,000, instead of
$240,000.
How much net income should be distributed
to Stephen? Prepare the journal entry to
close the Income Summary account.
Copyright © 2014 by Nelson Education Ltd.
48
FOLLOW MY EXAMPLE 11-4
Dividing Partnership Net Income—Allowances Exceed Net Income
For Practice: PE 11-4
Copyright © 2014 by Nelson Education Ltd.
49
Dividing Income in Event of Net Loss
Assume the same facts as before for
Greguric and Belfry, except that the
net loss is $7,000. The total of the
salary ($108,000) and interest
($2,790) is $110,790. In this case, the
total of the allowance exceeds the
net income by $117,790.
Copyright © 2014 by Nelson Education Ltd.
50
Net loss of $7,000 is divided.
This amount exceeds net loss by $117,790.
Copyright © 2014 by Nelson Education Ltd.
51
Net income of $100,000 is divided.
Copyright © 2014 by Nelson Education Ltd.
52
The entry for closing Income
Summary and dividing net income:
Copyright © 2014 by Nelson Education Ltd.
53
EXAMPLE EXERCISE 11-5
Dividing Partnership Net Income in Event of Net Loss
Use the information supplied in EE 11-3 for
Sarah Stephen and Xavier Williams, except for
net income. Assume the partnership had a
net loss for the year of $30,000, instead of
net income of $240,000.
How much net income should be distributed
to Stephen? Prepare the journal entry to
close the Income Summary account.
Copyright © 2014 by Nelson Education Ltd.
54
FOLLOW MY EXAMPLE 11-5
Dividing Partnership Net Income in Event of Net Loss
For Practice: PE 11-5
Copyright © 2014 by Nelson Education Ltd.
55
3
Describe and illustrate the
accounting for partner
admission and withdrawal.
Copyright © 2014 by Nelson Education Ltd.
56
Admitting a Partner
A person may be admitted to a
partnership only with the consent of
all the current partners by:
• Purchasing an interest from one or
more of the current partners.
• Contributing assets to the
partnership.
Copyright © 2014 by Nelson Education Ltd.
57
Exhibit 2
Two Methods for Admitting a Partner
Copyright © 2014 by Nelson Education Ltd.
58
Exhibit 2 (cont.)
Two Methods for Admitting a Partner
Copyright © 2014 by Nelson Education Ltd.
59
Purchasing an Interest in a
Partnership
Partners Lara Greguric and Mike
Belfry have capital balances of
$80,000 and $56,000, respectively.
On June 1, each sells one-fifth of
their equity to Marion Coome for
$27,200 in cash.
Copyright © 2014 by Nelson Education Ltd.
60
The only entry required in the
partnership accounts is as follows:
Copyright © 2014 by Nelson Education Ltd.
61
The effect of the transaction on the
partnership accounts is presented in
the following diagram:
Copyright © 2014 by Nelson Education Ltd.
62
Contributing Assets to a Partnership
Partners Lara Greguric and Mike
Belfry each have capital balances of
$80,000 and $56,000, respectively.
On June 1, Marion Coome
contributes $27,200 cash to Dundas
Hardware for ownership equity of
$27,200.
Copyright © 2014 by Nelson Education Ltd.
63
The entry to record this transaction is
as follows:
Copyright © 2014 by Nelson Education Ltd.
64
The effect of the transaction on the
partnership accounts is presented in
the following diagram:
Copyright © 2014 by Nelson Education Ltd.
65
Revaluation of Assets
If the asset accounts do not reflect
approximate current market values
when a new partner is admitted, the
accounts should be adjusted
(increased or decreased) before the
new partner is admitted.
Copyright © 2014 by Nelson Education Ltd.
66
The carrying value of accounts receivable
for Dundas Hardware is $24,000. The
partners feel the allowance should be
increased by $3,000.
The revaluation is recorded as follows:
Copyright © 2014 by Nelson Education Ltd.
67
EXAMPLE EXERCISE 11-6
Revaluing and Contributing Assets to a Partnership
Blake Nelson invested $45,000 in the Lawrence &
Kerry partnership for ownership equity of $45,000.
Prior to the investment, land was revalued to a
market value of $260,000 from a carrying value of
$200,000. Lynne Lawrence and Tim Kerry share net
income in a 1:2 ratio.
a. Provide the journal entry for the revaluation of
land.
b. Provide the journal entry to admit Nelson.
Copyright © 2014 by Nelson Education Ltd.
68
FOLLOW MY EXAMPLE 11-6
Revaluing and Contributing Assets to a Partnership
For Practice: PE 11-6
Copyright © 2014 by Nelson Education Ltd.
69
Exhibit 3
Partner Bonuses
Copyright © 2014 by Nelson Education Ltd.
70
Exhibit 3
Partner Bonuses
Copyright © 2014 by Nelson Education Ltd.
71
No Bonus
If the new partner pays the existing
partners the exact price of the
ownership interest received, then no
bonus is generated for either party.
Copyright © 2014 by Nelson Education Ltd.
72
On June 1, the partnership of
Greguric and Belfry admit Marion
Coome as a new partner. The assets
of the old partnership are adjusted to
current market values and the
resulting capital balances for
Greguric and Belfry are $78,200 and
$54,800, respectively.
Copyright © 2014 by Nelson Education Ltd.
73
Assume Greguric and Belfry agree to
admit Coome as a partner for
$33,250. In return, Coome will
receive a one-fifth equity in the
partnership and income allocation to
Greguric, Belfry, and Coome will be
50%, 30%, and 20%, respectively.
Copyright © 2014 by Nelson Education Ltd.
74
No Bonus
Copyright © 2014 by Nelson Education Ltd.
75
To record the admission of Coome to
the partnership is as follows:
Copyright © 2014 by Nelson Education Ltd.
76
Bonus to Existing Partners
The capital balances for Greguric and
Belfry are $78,200 and $54,800,
respectively.
Copyright © 2014 by Nelson Education Ltd.
77
Bonus to Existing Partners
Assume that on June 1, Greguric and
Belfry agree to admit Coome as a
partner for $40,000. In return,
Coome will receive a one-fifth equity
in the partnership and income
allocation to Greguric, Belfry, and
Coome will be 50%, 30%, and 20%,
respectively.
Copyright © 2014 by Nelson Education Ltd.
78
Bonus to Existing Partners
Copyright © 2014 by Nelson Education Ltd.
79
The entry to record this transaction is
as follows:
Copyright © 2014 by Nelson Education Ltd.
80
The bonus paid by Coome increases
Greguric’s and Belfry’s capital
accounts. It is distributed to the
capital accounts of Greguric and
Belfry according to their incomesharing ratio of 60% and 40%.
Copyright © 2014 by Nelson Education Ltd.
81
Bonus to Admitted Partners
Existing partners may also agree to pay the
new partner a bonus to join a partnership.
Assume Greguric and Belfry agree to admit
Coome as a partner for $25,000. In return,
Coome will receive a one-fifth equity in
the partnership and a 20% share in
partnership income or losses.
Copyright © 2014 by Nelson Education Ltd.
82
Bonus to Admitted Partner
Copyright © 2014 by Nelson Education Ltd.
83
The entry to record this transaction is
as follows:
Copyright © 2014 by Nelson Education Ltd.
84
The bonus paid to Coome decreases
Greguric’s and Belfry’s capital
accounts. It is distributed to the
capital accounts of Greguric and
Belfry according to their incomesharing ratio of 60% and 40%,
respectively.
Copyright © 2014 by Nelson Education Ltd.
85
EXAMPLE EXERCISE 11-7
Partner Bonus
Lowman has a capital balance of $45,000
after adjusting assets to fair market value.
Conrad contributes $26,000 to receive a 30%
interest in a new partnership with Lowman.
Determine the amount and recipient of the
partner bonus.
Copyright © 2014 by Nelson Education Ltd.
86
FOLLOW MY EXAMPLE 11-7
Partner Bonus
For Practice: PE 11-7
Copyright © 2014 by Nelson Education Ltd.
87
Withdrawal of a Partner
A partner may retire or withdraw
from a partnership by:
• Selling their interest to existing
partners.
• Selling their interest to the
partnership.
Copyright © 2014 by Nelson Education Ltd.
88
Exhibit 4
Two Methods for Retiring or Withdrawing
from a Partnership
Copyright © 2014 by Nelson Education Ltd.
89
Exhibit 4
Two Methods for Retiring or Withdrawing
from a Partnership
Copyright © 2014 by Nelson Education Ltd.
90
Selling an Interest to Existing Partners
On November 15, Lara Greguric
decides to retire from the
partnership. After the assets of the
partnership are adjusted to current
market values, the resulting capital
balances are as follows:
Copyright © 2014 by Nelson Education Ltd.
91
Selling an Interest to Existing Partners
Copyright © 2014 by Nelson Education Ltd.
92
Assume Belfry and Coome agree to
each pay Greguric $40,000 for equal
rights to her partnership share. This
transaction is between Greguric,
Belfry, and Coome. The only entry
required by the partnership is to
record the transfer of capital, as
shown on the next slide.
Copyright © 2014 by Nelson Education Ltd.
93
Copyright © 2014 by Nelson Education Ltd.
94
Selling an Interest to the Partnership
When a departing partner sells their
interest to the partnership, the total assets
and the total partners’ equity is decreased.
Selling an interest to the partnership can
result in:
a. No bonus paid
b. A bonus to the remaining partners
c. A bonus paid to the retiring partners
Copyright © 2014 by Nelson Education Ltd.
95
No Bonus
Prior to the retirement of Greguric, the capital
balances are as follows:
Assume Greguric is offered $82,500 upon her
retirement.
Copyright © 2014 by Nelson Education Ltd.
96
In this case, no bonus is paid and the
entry to record Greguric withdrawal
from the partnership is as follows:
Copyright © 2014 by Nelson Education Ltd.
97
Bonus to Remaining Partners
Assume the same capital balances prior to
Greguric retirement:
Greguric agrees to a payment of $80,000 upon
her retirement.
Copyright © 2014 by Nelson Education Ltd.
98
Bonus to Remaining Partners
In this case, a bonus is being paid to the
remaining partners.
The bonus is split over the remaining partners’
shares. Belfry will receive 30/50ths of the bonus
(30/(30% + 20%)) and Coome will receive
20/50ths (20/(20% + 30%)) of the bonus.
Copyright © 2014 by Nelson Education Ltd.
99
The entry to record Greguric
withdrawal from the partnership is as
follows:
Copyright © 2014 by Nelson Education Ltd.
100
Bonus to Retiring Partner
Assume the same capital balances prior to
Greguric retirement:
The partnership is willing to pay $90,000 upon
Greguric’ retirement.
Copyright © 2014 by Nelson Education Ltd.
101
Bonus to Remaining Partners
In this case, a bonus is being paid to the retiring
partner.
90,000
7,000
The entry to record Greguric’ withdrawal from
the partnership is as follows:
Copyright © 2014 by Nelson Education Ltd.
102
Copyright © 2014 by Nelson Education Ltd.
103
Death of a Partner
When a partner dies, the partnership
accounts should be closed as of the
date of death. The net income for the
current period should then be
determined and divided among the
partners’ capital accounts.
Copyright © 2014 by Nelson Education Ltd.
104
EXAMPLE EXERCISE 11-8
Withdrawal of Partner with Bonus
On June 30, Joanne Kyne decided to retire from the
partnership of Wilson, Kyne, Rose, and Jack. The
partnership decided to buy her out. After the assets
of the partnership had been adjusted to current
market values, the capital balances of Wilson, Kyne,
Rose, and Jack were $112,000, $80,000, $60,000,
and $80,000, respectively. Prepare the journal entry
to record Kyne’s retirement, assuming Kyne accepts
payment of $83,000 and the partners shared net
income and losses equally.
Copyright © 2014 by Nelson Education Ltd.
105
FOLLOW MY EXAMPLE 11-8
Withdrawal of Partner with Bonus
For Practice: PE 11-8
Copyright © 2014 by Nelson Education Ltd.
106
4
Describe and illustrate the
accounting for liquidating a
partnership.
Copyright © 2014 by Nelson Education Ltd.
107
Liquidating Partnerships
When a partnership goes out of
business, the winding-up process is
called the liquidation of a
partnership.
Copyright © 2014 by Nelson Education Ltd.
108
Liquidation Process
1. Sell the partnership assets.
2. Divide any gains or losses from sale of
assets to the partners’ capital accounts
based on their income-sharing ratio.
3. Pay the claims of creditors using the
cash from step 1.
4. Distribute the remaining cash to the
partners based on the balances in their
capital accounts.
Copyright © 2014 by Nelson Education Ltd.
109
Liquidation Process
Greguric, Belfry, and Coome decide
to liquidate their partnership. On
April 9, after discontinuing
operations, the firm had the
following trial balance.
Copyright © 2014 by Nelson Education Ltd.
110
Copyright © 2014 by Nelson Education Ltd.
111
Gain on Sale of Assets
On April 12, Greguric, Belfry, and
Coome sell all noncash assets for
$160,000. Thus, a gain of $7,600
($160,000 – ($28,400 + $66,000 +
$75,000 – $17,000)) is realized.
Copyright © 2014 by Nelson Education Ltd.
112
Step 1: Sale of Assets
The entry to record the sale of assets
is as follows:
Copyright © 2014 by Nelson Education Ltd.
113
Step 2: Division of the Gain
The gain is allocated to Greguric, Belfry,
and Coome in the income-sharing ratio of
5:3:2. Thus, the partner capital accounts
are credited as follows:
Greguric
Belfry
Coome
$3,800 ($7,600 × 50%)
$2,280 ($7,600 × 30%)
$1,520 ($7,600 × 20%)
Copyright © 2014 by Nelson Education Ltd.
114
Step 2: Division of the Gain
Copyright © 2014 by Nelson Education Ltd.
115
Step 3: Payment of Liabilities
Copyright © 2014 by Nelson Education Ltd.
116
Step 4: Distribution of Cash to
Partners
The remaining cash of $160,600 is
distributed to the partners based on
the balances in their capital
accounts. The income-sharing ratio
should not be used as a basis for
distributing the cash to partners.
Copyright © 2014 by Nelson Education Ltd.
117
Step 4: Distribution of Cash to
Partners
Copyright © 2014 by Nelson Education Ltd.
118
Copyright © 2014 by Nelson Education Ltd.
119
Loss on Sale of Assets
Greguric, Belfry, and Coome sell all
noncash assets for 140,000. A loss of
$12,400 ($140,000 – ($28,400 +
$66,000 + $75,000 – $17,000)) is
realized. The loss is distributed to
Greguric, Belfry, and Coome in the
income-sharing ratio of 5:3:2.
Copyright © 2014 by Nelson Education Ltd.
120
Copyright © 2014 by Nelson Education Ltd.
121
Step 1: Sale of Assets
Copyright © 2014 by Nelson Education Ltd.
122
Step 2: Division of the Loss
Copyright © 2014 by Nelson Education Ltd.
123
Step 3: Payment of Liabilities
Copyright © 2014 by Nelson Education Ltd.
124
Step 4: Distribution of Cash to Partners
Copyright © 2014 by Nelson Education Ltd.
125
EXAMPLE EXERCISE 11-9
Liquidating Partnerships
Prior to liquidating their partnership, Todd
and Gentry had capital accounts of $150,000
and $50,000, respectively, noncash assets of
$220,000, and liabilities of $20,000. Todd and
Gentry share income and loss in a ratio of 5:3.
The assets of the partnership were sold for
$200,000. Determine the amounts received
by Todd and Gentry as a final distribution
from the liquidation of the partnership.
Copyright © 2014 by Nelson Education Ltd.
126
FOLLOW MY EXAMPLE 11-9
Liquidating Partnerships
For Practice: PE 11-9
Copyright © 2014 by Nelson Education Ltd.
127
Loss on Sale of Assets—Capital
Deficiency
Greguric, Belfry, and Coome sell all of the
noncash assets for $12,400. A loss of
$140,000 ($12,400 – ($28,400 + $66,000 +
$75,000 – $17,000)) is realized. The share
of the loss allocated to Coome, $28,000
(20% of $140,000), exceeds the $25,800
balance in her capital account. Coome
contributes $2,200 to the partnership.
Copyright © 2014 by Nelson Education Ltd.
128
Step 1: Sale of Assets
Copyright © 2014 by Nelson Education Ltd.
129
Step 2: Division of Loss
Copyright © 2014 by Nelson Education Ltd.
130
Step 3: Payment of Liabilities
Copyright © 2014 by Nelson Education Ltd.
131
Step 4: Distribution of Cash to
Partners
Copyright © 2014 by Nelson Education Ltd.
132
Copyright © 2014 by Nelson Education Ltd.
133
Partner Does Not Pay Deficiency
If Coome does not pay her deficiency,
the deficiency would be allocated to
Greguric and Belfry based on their
income-sharing ratio of 3:2. The
remaining cash would be distributed
to Greguric and Belfry as shown on
the next slide.
Copyright © 2014 by Nelson Education Ltd.
134
Partner Does Not Pay Deficiency
Copyright © 2014 by Nelson Education Ltd.
135
Allocation of Deficiency
Copyright © 2014 by Nelson Education Ltd.
136
Distribution of Cash to Partners
Copyright © 2014 by Nelson Education Ltd.
137
EXAMPLE EXERCISE 11-10
Liquidating Partnerships—Deficiency
Prior to liquidating their partnership, Short
and Bain had capital accounts of $20,000 and
$80,000, respectively, noncash assets of
$110,000, and $10,000 of liabilities. Short
and Bain share income and loss equally. The
assets were sold for $40,000. Determine the
amount of Short’s deficiency. Determine the
amount distributed to Bain, assuming Short is
unable to satisfy the deficiency.
Copyright © 2014 by Nelson Education Ltd.
138
FOLLOW MY EXAMPLE 11-10
Liquidating Partnerships—Deficiency
For Practice: PE 11-10
Copyright © 2014 by Nelson Education Ltd.
139
5
Prepare the statement of
changes in partnership equity.
Copyright © 2014 by Nelson Education Ltd.
140
Statement of Changes in Partnership
Equity
The change in the owners’ capital
accounts for a period of time is
reported in a statement of changes
in partnership equity.
Copyright © 2014 by Nelson Education Ltd.
141
Copyright © 2014 by Nelson Education Ltd.
142
Exhibit 8 (cont.)
Copyright © 2014 by Nelson Education Ltd.
143
The End
Copyright © 2014 by Nelson Education Ltd.
144