Financial statements for a partnership report the details of each partner’s capital. In a liquidation the assets are sold, creditors are paid, and any remaining cash is distributed by the partners. Glencoe Accounting Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Prepare an income statement for a partnership. Prepare a statement of changes in partners’ equity. Prepare the Partners’ Equity section of a balance sheet. Account for partnership liquidation losses. Account for partnership liquidation gains. Prepare the final entry to liquidate a partnership. Glencoe Accounting Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Key Term statement of changes in partners’ equity Financial Statements for a Partnership Section 28.1 Key Term statement of changes in partners’ equity Glencoe Accounting

The Income Statement Financial Statements for a Partnership Section 28.1 A partnership’s income statement is prepared in the same way as that for any business. The division of net income may or may not be shown on the income statement. See page 811 Glencoe Accounting

The Statement of Changes in Partners’ Equity Financial Statements for a Partnership Section 28.1 What Is the Statement of Changes in Partners’ Equity? statement of changes in partners’ equity A financial statement that reports the change in each partner’s capital account resulting from business operations, investments, and withdrawals. Glencoe Accounting

The Statement of Changes in Partners’ Equity Financial Statements for a Partnership Section 28.1 Statement of Changes in Partners’ Equity See page 812 Glencoe Accounting

The Balance Sheet Financial Statements for a Partnership Section 28.1 The owners’ equity section of the balance sheet is called the Partners’ Equity section. See page 812 Glencoe Accounting

Key Terms dissolution liquidation Liquidation of a Partnership Section 28.2 Key Terms dissolution liquidation Glencoe Accounting

Two Methods of Ending a Partnership Liquidation of a Partnership Section 28.2 Dissolution Two Methods of Ending a Partnership Liquidation dissolution A legal change to the partnership such as a change in partners that does not generally affect the operations of the business. liquidation When the business ceases to exist and dissolution is complete, all partnership assets are converted to cash, all debts are paid, and any remaining cash is distributed to the individual partners. Glencoe Accounting

Ending a Partnership Steps of Ending a Partnership 1 2 3 4 Liquidation of a Partnership Section 28.2 Steps of Ending a Partnership 1 Sell all noncash assets for cash. Add all gains (or deduct all losses) resulting from the sale of noncash assets to or from the capital accounts of the partners based on the partnership agreement. 2 3 Pay all partnership creditors. After the creditors have been paid, any cash remaining should be distributed to the partners based on the final balance in their capital account. 4 Glencoe Accounting

Liquidating Boardwalk Bike & Skate Rentals Liquidation of a Partnership Section 28.2 See page 815 Glencoe Accounting

Liquidating Boardwalk Bike & Skate Rentals Liquidation of a Partnership Section 28.2 This entry records the company’s sale of the receivables and loss distribution. See page 815 Glencoe Accounting

Liquidating Boardwalk Bike & Skate Rentals Liquidation of a Partnership Section 28.2 This entry records the sale of the inventory and the distribution of the loss to the partners. See page 816 Glencoe Accounting

Liquidating Boardwalk Bike & Skate Rentals Liquidation of a Partnership Section 28.2 Entry to record the sale of the equipment and distribution of the gain See page 816 Glencoe Accounting

Liquidating Boardwalk Bike & Skate Rentals Liquidation of a Partnership Section 28.2 The entry to record the payment of partnership liabilities See page 817 Glencoe Accounting

Liquidating Boardwalk Bike & Skate Rentals Liquidation of a Partnership Section 28.2 The final transaction to end the partnership See page 817 Glencoe Accounting

Step 1 Step 2 Step 3 (continued) Question 1 On December 31 the partnership of Douglas and Allen, which shares gains and losses equally, sold a piece of equipment for $66,000. The equipment had cost $78,000 to purchase. To date, it had accumulated depreciation of $16,000. Complete the process to journalize this transaction. Compute the book value of the equipment. $78,000 - $16,000 = $62,000 Step 1 Calculate the gain or loss generated by the sale. $66,000 - $62,000 = $4,000 gain Step 2 Calculate each partner’s share. $4,000 ÷ 2 = $2,000 Step 3 (continued) Glencoe Accounting

Which account(s) is (are) debited? For what amount? Question 1 On December 31 the partnership of Douglas and Allen, which shares gains and losses equally, sold a piece of equipment for $66,000. The equipment had cost $78,000 to purchase. To date, it had accumulated depreciation of $16,000. Complete the process to journalize this transaction. Step 4 Which account(s) is (are) debited? For what amount? Debit Accumulated Depreciation-Equipment for $16,000. Debit Cash in Bank for $66,000. Step 5 Which account(s) is (are) credited? For what amount? Credit Douglas, Capital for $2,000. Credit Allen, Capital for $2,000. Credit Equipment for $78,000. Glencoe Accounting

Answers will vary and might include: Question 2 If a partnership divides profits equally, how could the partners’ capital accounts have different balances? Answers will vary and might include: One or more partners may have invested additional capital in the business. One or more partners may have withdrawn different amounts during the life of the partnership. Glencoe Accounting

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