1. Section 2Liquidation of a Partnership What You’ll Learn  How to record losses in a partnership liquidation.  How to record gains in a partnership liquidation.  How to record the cash distribution required to liquidate a partnership. What You’ll Learn  How to record losses in a partnership liquidation.  How to record gains in a partnership liquidation.  How to record the cash distribution required to liquidate a partnership.

2. Why It’s Important When a partnership is liquidated, the gains or losses from the sale of noncash assets are recognized, the debts of the partnership are paid, and the balance of cash is distributed to the partners. Why It’s Important When a partnership is liquidated, the gains or losses from the sale of noncash assets are recognized, the debts of the partnership are paid, and the balance of cash is distributed to the partners. Key Terms  partnership liquidation Key Terms  partnership liquidation Section 2Liquidation of a Partnership (cont'd.)

3. Ending the Partnership  Settling the affairs of the partnership business when it ends is referred to as partnership liquidation.  All partnership assets are converted to cash and all partnership debts are paid.  Any remaining cash is then paid to the individual partners.  Settling the affairs of the partnership business when it ends is referred to as partnership liquidation.  All partnership assets are converted to cash and all partnership debts are paid.  Any remaining cash is then paid to the individual partners. Section 2Liquidation of a Partnership (cont'd.)

4. Sale of Partnership Accounts Receivable at a Loss On April 20, the $33,000 in accounts receivable are sold to a finance broker for $29,000. The sale of the receivables results in a $4,000 ($29,000 – $33,000) loss to the partnership. Sale of Partnership Accounts Receivable at a Loss On April 20, the $33,000 in accounts receivable are sold to a finance broker for $29,000. The sale of the receivables results in a $4,000 ($29,000 – $33,000) loss to the partnership. Section 2Liquidation of a Partnership (cont'd.)

5. Sale of Partnership Merchandise at a Loss On April 29, the merchandise inventory, which cost $35,000, is sold for $32,000 to a discount warehouse. The sale results in a $3,000 ($32,000 – $35,000) loss to the partnership. Sale of Partnership Merchandise at a Loss On April 29, the merchandise inventory, which cost $35,000, is sold for $32,000 to a discount warehouse. The sale results in a $3,000 ($32,000 – $35,000) loss to the partnership. Section 2Liquidation of a Partnership (cont'd.)

6. Sale of Partnership Equipment at a Gain The partnership owns equipment that cost $48,000 and has accumulated depreciation of $8,000. On May 5, the equipment is sold to a dealer for $42,000 resulting in a gain of $2,000 ($42,000 – $40,000). Sale of Partnership Equipment at a Gain The partnership owns equipment that cost $48,000 and has accumulated depreciation of $8,000. On May 5, the equipment is sold to a dealer for $42,000 resulting in a gain of $2,000 ($42,000 – $40,000). Section 2Liquidation of a Partnership (cont'd.)

7. The Payment of Partnership Liabilities On May 11, the partnership mails Check 234 to pay the bank note and Checks 235 through 238 to pay the accounts payable balances. The Payment of Partnership Liabilities On May 11, the partnership mails Check 234 to pay the bank note and Checks 235 through 238 to pay the accounts payable balances. Section 2Liquidation of a Partnership (cont'd.)

8. Final Distribution of Cash On May 15, the partnership is ended by distributing the balance of Cash in Bank to Gill and Putman. Final Distribution of Cash On May 15, the partnership is ended by distributing the balance of Cash in Bank to Gill and Putman. Section 2Liquidation of a Partnership (cont'd.)

9. Check Your Understanding Explain how to distribute the cash that remains after a partnership sells all of its non-cash assets and pays all of its debts. Section 2Liquidation of a Partnership (cont'd.)