1. Accounting for Partnerships
Chapter 12
Accounting for Partnerships
Chapter 12: Accounting for partnerships

2. Partnership Form of Organization
C 1
Voluntary Association
Limited Life
Partnership Agreement
Taxation
Probably, the first thing new partners should do is prepare a partnership agreement. Without such an agreement, the Uniform Partnership Act will govern many of the key financial questions faced by the partners. A partnership has a limited life. Unless provision is made to the contrary, a partnership ceases to exist upon the death of a partner, the withdrawal of a partner, or the admission of a new partner. In a general partnership, each partner has unlimited liability for the acts of all other partners. Income or loss of the partnership flows through to the individual partners. Income or loss from the partnership is taxed as any other income received by an individual. Let’s look at three special types of partnerships.
Mutual Agency
Unlimited Liability
Co-Ownership of Property

3. Organizations with Partnership Characteristics
Limited Partnerships (LP)
General partners assume management duties and unlimited liability for partnership debts.
Limited partners have no personal liability beyond invested amounts.
Limited Liability Partnerships (LLP)
Protects innocent partners from malpractice or negligence claims.
Most states hold all partners personally liable for partnership debts.
Limited Liability Corporations (LLC)
Owners have same limited liability feature as owners of a corporation.
A limited liability corporation typically has a limited life.
In a limited partnership, one partner is designated as the general partner. The general partner assumes management duties for the entire partnership. Normally, the general partner has unlimited liability and the other partners have no personal liability beyond the amounts invested in the partnership. Partners may form a limited liability partnership, or LLP. An LLP protects innocent partners from malpractice or negligence claims brought against an offending partner. In most states, individual partners are personally liable for the debts of the partnership. Partners may wish to consider forming a limited liability corporation, or LLC. In an LLC, individual owners have limited liability, but the corporation typically has a limited life defined in the agreement.

4. Choosing a Business Form
Many factors should be considered when choosing the proper business form.
This table identifies the major advantages and disadvantages of all the forms of business we have discussed. Obviously, the choice of the proper form of business is important to the success of any operation. It is a good idea to review this table when studying for your next exam.

5. Organizing a Partnership
Partners can invest both assets and liabilities in the partnership.
Assets and liabilities are recorded at an agreed-upon value, normally fair market value.
Asset contributions increase the partner’s capital account.
When a partnership is formed, each partner may contribute both assets and liabilities to the partnership. Contributed assets increase partner’s capital and liabilities decrease partner’s capital. Assets are normally recorded at fair market value and liabilities are recorded at the amount payable. Each partner may be entitled to withdraw cash or other assets from the partnership. A withdrawal reduces the partner’s capital account.
Withdrawals from the partnership decrease the partner’s capital account.

6. Organizing a Partnership
In accounting for partnerships:
Partners’ withdrawals are debited to their own separate withdrawals account.
Partners’ capital accounts are credited (or debited) for their shares of net income (or net loss) when closing the accounts at the end of the period.
Each partner’s withdrawal account is closed to that partner’s capital account. Separate capital and withdrawals accounts are kept for each partner.
In accounting for partnerships, the following additional relations hold true:
Partners’ withdrawals are debited to their own separate withdrawals account.
Partners’ capital accounts are credited (or debited) for their shares of net income (or net loss) when closing the accounts at the end of the period.
Each partner’s withdrawal account is closed to that partner’s capital account. Separate capital and withdrawals accounts are kept for each partner.

7. Organizing a Partnership
On 1/11, Kayla Zayn and Hector Perez organize a partnership called BOARDS. Zayn’s initial investment is $7,000 cash, $33,000 in boarding facilities, and a note payable for $10,000 on the boarding facilities. Perez’s initial investment is $10,000 cash.
In our example, Kayla Zayn and Hector Perez organize a partnership called BOARDS. Zayn’s initial investment is $7,000 cash, $33,000 in boarding facilities, and a note payable for $10,000 on the boarding facilities. Perez’s initial investment is $10,000 cash. Let’s look at the journal entries required at inception of the partnership. On the books of the partnership, we will debit the asset account Cash for $7,000, and Boarding Facilities for $33,000. We will credit Notes Payable for $10,000 and credit K. Zayn, Capital for $30,000, to admit Kayla to the partnership.
Now, let’s prepare the entry to admit Hector Perez to the partnership.
For Hector Perez, we will debit Cash for $10,000 and credit H. Perez, Capital for the same amount, to admit Hector to the partnership.

8. Dividing Income or Loss
P 2
Partners are not employees of the partnership but are its owners. This means there are no salaries reported as expense on the income statement. Profits or losses of the partnership are divided on some agreed upon ratio.
Three frequently used methods to divide income or loss are allocation on:
Stated ratios.
Capital balances.
Services, capital and stated ratios.
Partners are not considered employees of the partnership but are owners. There is no salary expense reported on the income statement for distributions to partners. Profits and losses of the partnership are divided among the partners in some agreed upon ratio. Very often partners agree to divide profit and losses on the basis of some stated ratio, on the capital balance of each partner, or on some combination of these amounts.

9. Allocation on Stated Ratios
P 2
In the partnership agreement, Zayn is to receive 2/3 and Perez 1/3 of partnership income or loss. If the partnership income is $60,000, we will allocate the income to partners as follows:
$60,000 × 2/3 = $40,000
In the partnership agreement, Zayn is to receive 2/3 and Perez 1/3 of partnership income or loss. If the partnership income is $60,000. Let’s look at the journal entry to allocate the income to each partner’s capital account.
Assuming we have closed all revenue and expense accounts to the income summary, we will debit the income summary for $60,000. This will reduce the balance in the income summary to zero. Next, we credit K. Zayn, Capital for $40,000 (two-thirds of the $60,000 income), and credit H. Perez, Capital for $20,000 (one-third of $60,000 net income).

10. Allocation on Capital Balances
In their partnership agreement, Zayn and Perez agree to allocate profits and losses on the basis of their beginning capital balances.
Now let’s assume that in their partnership agreement, Zayn and Perez agree to allocate profits and losses on the basis of their beginning capital balances. Zayn’s beginning capital balance is $30,000, and Perez’s beginning balance is $10,000. Net income is still $60,000.
The partnership has total capital of $40,000. We will allocate the income 75% to Zayn and 25% to Perez, so Zayn’s capital account will be credited with $45,000 and Perez will be credited with $15,000. The journal entry to divide the profit is to debit the Income Summary for $60,000, credit K. Zayn, Capital for $45,000, and credit H. Perez, Capital for $15,000.

11. Allocation on Services, Capital, and Stated Ratios
Zayn and Perez have a partnership agreement with the following conditions:
Zayn receives a $36,000 annual salary allowance and Perez receives an allowance of $24,000.
Each partner is allowed an annual interest allowance of 10% on their beginning capital balance.
Any remaining balance of income or loss is allocated equally.
Net income is $70,000.
Now, let’s look at a more complex, and realistic way that partners may decide to divide profits and losses. Zayn and Perez have a partnership agreement with the following conditions:
Zayn receives a $36,000 annual salary allowance and Perez receives an allowance of $24,000.
Each partner is allowed an annual interest allowance of 10% on their beginning capital balance.
Any remaining balance of income or loss is allocated equally.
Let’s see how the net income of $70,000 will be allocated.

12. Allocation on Services, Capital, and Stated Ratios
$30,000 × 10% = $3,000
$6,000 × ½ = $3,000
We begin with the $70,000 of income to allocate to the two partners. Next, we provide an allowance for salary of $36,000 to Zayn and $24,000 to Perez. After this allowance, we have $10,000 remaining to be allocated to the partners. Next, we provide the interest on beginning capital. Zayn will receive an allocation of $3,000 (10% times beginning capital balance of $30,000) and Perez will be allocated $1,000 (10% times beginning capital balance of $10,000). After this allocation, we have $6,000 remaining to be allocated. Finally, we allocate the remainder equally between Zayn and Perez. We will allocate $3,000 to each partner. When the allocation is complete, Zayn will have income of $42,000 and Perez will have income of $28,000.

13. Allocation on Services, Capital, and Stated Ratios
Now let’s assume that net income is only $50,000.
($14,000) × ½ = ($7,000)
Now, we begin with the $50,000, instead of $70,000 in our previous example, of income to allocate to the two partners. First, we provide an allowance for salary of $36,000 to Zayn and $24,000 to Perez. After this allowance, we have a negative $10,000 remaining to be allocated to the partners. Next, we provide the interest on beginning capital. Zayn will receive an allocation of $3,000 (10% times beginning capital balance of $30,000) and Perez will be allocated $1,000 (10% times beginning capital balance of $10,000). After this allocation, we have a negative $14,000 remaining to be allocated. Finally, we allocate the negative $14,000 equally between Zayn and Perez. Each partner will receive a reduction of $7,000. We can see that Zayn has income of $32,000 and Perez has income of $18,000.

14. Partnership Financial Statements
During 2009, Zayn withdrew $20,000 cash from the partnership and Perez withdrew $12,000. Net income for the year is $70,000.
During 2011, Zayn withdrew $20,000 cash from the partnership and Perez withdrew $12,000. Net income for the year is $70,000. Let’s see what the ending capital balance is for each partner. Zayn started with a capital balance of zero, made an initial investment of $30,000, was allocated $42,000 of the $70,000 net income, and withdrew $20,000 during the year. Her ending capital balance is $52,000. Perez had the same beginning capital balance and invested $10,000 cash during the year. He was allocated $28,000 from the next income of $70,000, and withdrew $12,000 cash during the year. His ending capital balance is $26,000. At the end of 2009, total capital of the partnership is $78,000. We are now ready to begin the next year.

15. Admission and Withdrawal of Partners
When the makeup of the partnership changes, the existing partnership is dissolved.
A new partnership may be immediately formed.
New partner acquires partnership interest by:
Purchasing it from the other partners, or
Investing assets in the partnership.
We can admit a new partner into the partnership in one of two ways. First, the new partner may purchase a partnership interest from one or more of the existing partners as individuals. In other words, the new partner purchases capital from an existing partner. Second, the new partner may be admitted to the partnership by making a new investment in the partnership.

16. Purchase of Partnership Interest
A new partner can purchase partnership interest directly from the existing partners.
The cash goes to the partners, not to the partnership.
To become a partner, the new partner must be accepted by the current partners.
If a new partner is to purchase a portion of the partnership interest of an existing partner, all other partners must agree to the sale. Any cash involved is paid directly to the existing partner who is reducing his or her partnership interest, with no cash flows into the partnership. From an accounting standpoint, we are shifting part of an existing partner’s capital to a new partner. Let’s look at an example.

17. Purchase of Partnership Interest
On January 4th, Hector Perez sells one-half of his partnership interest to Tyrell Rasheed for $18,000. Perez gives up a $13,000 recorded interest in the partnership.
On January 4th, Hector Perez sells one-half of his partnership interest to Tyrell Rasheed for $18,000. Perez gives up a $13,000 recorded interest in the partnership. Prior to the transaction between Perez and Rasheed, Perez has a capital balance of $26,000. When Rasheed is admitted to the partnership, one-half of this capital will be transferred from Perez to Rasheed. So, $13,000 will be taken away from Perez’s capital balance and added to Rasheed’s capital balance. On the date of transfer, we will debit, or reduce, H. Perez, Capital for $13,000 and credit, or increase, T. Rasheed, Capital for the same amount. Rasheed will pay Perez $18,000 cash, but this is a private transaction between the two and not recorded on the books of the partnership. Notice that the total equity of the partnership remains unchanged by the admission of Rasheed.

18. Investing Assets in a Partnership
The new partner can gain partnership interest by contributing assets to the partnership.
The new assets will increase the partnership’s net assets.
After admission, both assets and equity will increase.
Now let’s look at the admission of a new partner to the partnership through an investment into the partnership. The new investment will increase both the assets and equity of the expanded partnership. Let’s look at an example of this type of transaction.

19. Investing Assets in a Partnership
On January 4th, Tyrell Rasheed is admitted to the partnership with a payment of $22,000 cash.
On January 4th, Tyrell Rasheed is admitted to the partnership with a payment of $22,000 cash. Of course, we would have to draft a new partnership agreement as to the division of profits and losses and other important matters. Here is how the partnership capital will appear after the admission of Rasheed. Can you prepare the journal entry to reflect the admission of Rasheed? At the date of admission, we will debit the cash account for $22,000 and credit, or increase, T. Rasheed, Capital for the same amount. We now need to look more closely at this type of partner admission because we may have to handle some unusual situations.

20. Bonus to Old or New Partners
Bonus to Old Partners
When the current value of a partnership is greater than the recorded amounts of equity, the old partners usually require a new partner to pay a bonus when joining.
Bonus to New Partners
The partnership may grant a bonus to a new partner if the business is in need of cash or if the new partner has exceptional talents.
There may be a bonus involved when a new partner is admitted through an investment in the partnership. If the current value of the partnership capital is greater than the recorded amount of equity, the existing partners usually require the new partner to pay a bonus when joining the partnership. In some cases, a bonus may be granted to the new partner because the existing partnership is in need of additional cash or investment capital. Let’s see how these situations are handled.

21. Bonus to Old Partners
P 3
On January 4th, Zayn and Perez agree to accept Rasheed as a partner upon his investment of $42,000 cash in the partnership. Rasheed is to receive a 25% ownership interest in the new partnership. Any bonus is attributable to the existing partners and is shared equally.
On January 4th, Zayn and Perez agree to accept Rasheed as a partner upon his investment of $42,000 cash in the partnership. Rasheed is to receive a 25% ownership interest in the new partnership. Any bonus is attributable to the existing partners and is shared equally. The total equity before admitting Rasheed is $78,000 ($52,000 for Zayn and $26,000 for Perez). After Rasheed is admitted, the total capital will be $120,000. If Rasheed is given credit for 25% of the total capital, his capital account will have a balance of $30,000. Let’s prepare the journal entry to admit Rasheed.

22. Bonus to Old Partners
P 3
On January 4th, Zayn and Perez agree to accept Rasheed as a partner upon his investment of $42,000 cash in the partnership. Rasheed is to receive a 25% ownership interest in the new partnership. Any bonus is attributable to the existing partners and is shared equally.
We know that Rasheed will pay $42,000 cash into the partnership and receive a capital account balance of $30,000. The difference is $12,000 and is attributable to the existing partners, Zayn and Perez. Both Zayn and Perez will be given credit for half of the $12,000, or $6,000 each.
$42,000 - $30,000 = $12,000 × ½ = $6,000

23. Bonus to New Partner
P 3
On January 4th, Zayn and Perez agree to accept Rasheed as a partner upon his investment of $18,000 cash in the partnership. Rasheed is to receive a 25% ownership interest in the new partnership. Any bonus is attributable to Rasheed’s excellent business skills.
On January 4th, Zayn and Perez agree to accept Rasheed as a partner upon his investment of $18,000 cash in the partnership. Rasheed is to receive a 25% ownership interest in the new partnership. Any bonus is attributable to Rasheed’s excellent business skills. After admitting Rasheed, the total capital will be $96,000 and Rasheed will receive credit for 25% of this amount, or $24,000. Let’s prepare the entry to admit Rasheed into the partnership.

24. Bonus to New Partner
P 3
On January 4th, Zayn and Perez agree to accept Rasheed as a partner upon his investment of $18,000 cash in the partnership. Rasheed is to receive a 25% ownership interest in the new partnership. Any bonus is attributable to Rasheed’s excellent business skills.
Partnership assets will increase by $18,000 cash and Rasheed’s capital account will be credited for $24,000. The difference of $6,000 is attributable to the new partner, Rasheed. So, we must reduce the capital accounts of Zayn and Perez by $3,000 each. Now we need to spend some time discussing the withdrawal of an existing partner.
$18,000 - $24,000 = ($6,000) × ½ = ($3,000)

25. Withdrawal of a Partner
A partner can withdraw in two ways:
The partner can sell his/her partnership interest to another person.
The partnership can distribute cash and/or other assets to the withdrawing partner.
A partner can withdraw from a partnership in one of two ways. First, the partner can sell his or her partnership interest for cash to another person. Any remaining partners must agree to the sale. Second, the partnership could distribute cash to the withdrawing partner in payment of his or her partnership interest. Let’s look at an example of the withdrawal of a partner.

26. Withdrawal of a Partner
At the date of the withdrawal of Perez, the partners have the following capital balances: Perez - $38,000, Zayn - $84,000, and Rasheed - $38,000. The partners share income and loss equally. Perez is to receive $38,000 cash upon withdrawal from the partnership.
No Bonus
On October 31st, Perez withdraws from the partnership. On this date, the partners have the following capital balances: Perez - $38,000, Zayn - $84,000, and Rasheed - $38,000. The partners share income and loss equally. Perez is to receive $38,000 cash upon withdrawal from the partnership. There is no bonus because Perez receives assets valued at the amount of his capital balance.
We will eliminate the capital account balance of Perez with a debit of $38,000 and credit the cash account for the same amount. Perez can take any combination of assets to which the partners agree to settle his equity. His withdrawal creates a new partnership between Zayn and Rasheed.

27. Withdrawal of a Partner
At the date of the withdrawal of Perez, the partners have the following capital balances: Perez - $38,000, Zayn - $84,000, and Rasheed - $38,000. The partners share income and loss equally. Perez is to receive $34,000 cash upon withdrawal from the partnership.
Bonus to Remaining Partners
On October 31st, Perez withdraws from the partnership. On this date, the partners have the following capital balances: Perez - $38,000, Zayn - $84,000, and Rasheed - $38,000. The partners share income and loss equally. Perez is to receive $34,000 cash upon withdrawal from the partnership. Because Perez will receive less than the amount of his capital account, a bonus will be created. That bonus will be attributable to the remaining partners. We will eliminate the capital account balance of Perez with a debit of $38,000 and credit the cash account for $34,000. The withdrawal of Perez creates a $4,000 bonus that will be divided between the two remaining partners on a equal basis. So, we will credit the capital accounts of both Zayn and Rasheed for $2,000.
Capital balance
$ 38,000
Cash settlement
34,000
Bonus
4,000
Times
50%
Bonus to each partner
$ 2,000

28. Withdrawal of a Partner
At the date of the withdrawal of Perez, the partners have the following capital balances: Perez - $38,000, Zayn - $84,000, and Rasheed - $38,000. The partners share income and loss equally. Perez is to receive $40,000 cash upon withdrawal from the partnership.
Bonus to Withdrawing Partner
On October 31st, Perez withdraws from the partnership. On this date, the partners have the following capital balances: Perez - $38,000, Zayn - $84,000, and Rasheed - $38,000. The partners share income and loss equally. Perez is to receive $40,000 cash upon withdrawal from the partnership. Because Perez will receive assets in excess of his capital balance, the bonus is attributable to him and will be allocated from the remaining partners’ capital accounts.
We will eliminate the capital account balance of Perez with a debit of $38,000 and credit the cash account for $40,000. There is a $2,000 bonus attributable to Perez what will serve to reduce the remaining partners’ capital accounts. So, the capital account of each remaining partner will be reduced, with a debit, by $1,000 (one-half of the total bonus).
Capital balance
$ 38,000
Cash settlement
40,000
Deficiency
2,000
Times
50%
To each partner
$ 1,000

29. Death of a Partner
P 3
A partner’s death dissolves a partnership. A deceased partner’s estate is entitled to receive his or her equity. The partnership agreement should contain provisions for settlement. These provisions usually require:
Closing the books to determine income or loss since the end of the previous period, and
Determining and recording current market values for both assets and liabilities.
Settlement of the deceased partner’s estate can involve selling the equity to remaining partners or to an outsider, or it can involve withdrawal of assets.
A partner’s death dissolves a partnership. A deceased partner’s estate is entitled to receive his or her equity. The partnership agreement should contain provisions for settlement. These provisions usually require:
Closing the books to determine income or loss since the end of the previous period, and
Determining and recording current market values for both assets and liabilities.
Settlement of the deceased partner’s estate can involve selling the equity to remaining partners or to an outsider, or it can involve withdrawal of assets. Let’s look at some examples.

30. Liquidation of a Partnership
A partnership dissolution requires four steps:
Noncash assets are sold for cash and a gain or loss on liquidations is recorded.
Gain or loss on liquidation is allocated to partners using their income-and-loss ratio.
Liabilities are paid or settled.
Any remaining cash is distributed to partners based on their capital balances.
There are four steps involved in the liquidation of a partnership. First, all noncash assets are sold for cash and any resulting gains or losses are recorded.
Second, any gains or losses recognized in the first step are allocated to the partners using their profit and loss sharing ratio. Third, all liabilities are paid in full or otherwise settled. Finally, remaining cash is distributed to the partners based upon the balances in their respective capital accounts.
Let’s prepare the liquidation of our partnership.

31. No Capital Deficiency
P 4
No capital deficiency means that all partners have a zero or credit balance in their capital accounts.
Zayn, Perez and Rasheed agree to dissolve their partnership. The only outstanding liability is an account payable of $20,000. Prior to dissolution the partnership has the following balance sheet:
In our example, there is no capital deficiency. No capital deficiency means that all partners have a zero or credit balance in their capital accounts. Zayn, Perez and Rasheed agree to dissolve their partnership. The only outstanding liability is an account payable of $20,000. At the start of the dissolution process, Zayn has a capital balance of $70,000, Perez $66,000, and Rasheed $62,000.
We begin the process by selling the land at book value and paying our only liability, an account payable. The journal entry is to debit Accounts Payable for $20,000 and credit Cash for the same amount. Once the liabilities have been paid, the remaining cash is distributed to the partners. Let’s prepare the journal entry.

32. No Capital Deficiency
P 4
BOARDS’ begins the dissolution process by selling the land for $46,000 cash. The gain on the sale of the land is distributed equally among the partners. After the sale of the land the company pays the account payable.
BOARDS’ begins the dissolution process by selling the land for $46,000 cash. The gain on the sale of land is distributed equally among the partners. After the sale of the land, the company pays the account payable.
We record the sale of the land with a debit to Cash for 46,000, and a credit to the Land account for $40,000. The $6,000 gain will be divided equally among the three partners at the rate of $2,000 each. The entry to record the payment of the accounts payable is to debit Accounts Payable for $20,000, and to credit the Cash account for the same amount.

33. No Capital Deficiency
P 4
After the sale of land for a gain and the payment of the company’s accounts payable, BOARDS’ has the following balance sheet:
After the sale of the land and payment of the accounts payable, the company’s balance sheet has total assets of $204,000 and total partners’ equity of $204,000. The next step in the liquidation is to distribution the cash to the partners.
The journal entry to record the liquidation is to debit each partner’s capital account for their current balance and credit Cash for $204,000. Now all accounts on the partnership’s books have a zero balance.

34. Capital Deficiency
P 4
Capital deficiency means that at least one partner has a debit balance in his or her capital account at the point of final cash distribution. This can arise from liquidation losses, excessive withdrawals before liquidation, or recurring losses in prior periods. A partner with a capital deficiency must, if possible, cover the deficit by paying cash into the partnership.
Capital deficiency means that at least one partner has a debit balance in his or her capital account at the point of final cash distribution. This can arise from liquidation losses, excessive withdrawals before liquidation, or recurring losses in prior periods. A partner with a capital deficiency must, if possible, cover the deficit by paying cash into the partnership.

35. Capital Deficiency
P 4
Zayn, Perez, and Rasheed agree to dissolve their partnership. Prior to the final distribution of cash to the partners, Zayn has a capital balance of $19,000, Perez $8,000, and Rasheed ($3,000). Rasheed owes the partnership $3,000 and is able to pay the amount.
In the process of liquidation, a capital deficiency means that at least one partner has a debit balance in his/her capital account. A partner with a deficit must, if possible, cover the deficit by paying cash into the partnership. In our liquidation, Zayn has a capital balance of $19,000, Perez $8,000, and Rasheed ($3,000). Rasheed owes the partnership $3,000 and is able to pay the amount. Let’s look at the entries to liquidate the partnership.
First, Rasheed will pay the partnership his $3,000 capital deficiency. The journal entry is to debit Cash for $3,000 and credit T. Rasheed, Capital for $3,000. Rasheed now has a capital balance of zero.
To complete the liquidation, we debit K. Zayn, Capital for $19,000, debit H. Perez, Capital for $8,000, and credit Cash for $27,000. The partnership has been liquidated. Let’s see what happens when the partner cannot pay the capital deficiency.

36. Partner Cannot Pay Deficiency
Let’s use the information from our previous example of a capital deficiency and assume partners divide profit and losses equally.
Let’s use the same information we just discussed and assume that Rasheed is not able to pay the partnership for his deficiency and that the partners share profits and losses equally. The remaining partners will have to absorb Rasheed’s deficiency.
We divide the deficiency between Zayn and Perez on the basis of their profit and loss sharing agreement. Because profits and losses are shared equally, $1,500 will be absorbed by each of the remaining partners. After we record the journal entry for the deficiency, Zayn will have a capital account balance of $17,500, and Perez’s capital account balance will be $6,500. Let’s look at the journal entries.
To allocate Rasheed’s deficiency between the two remaining partners, we will debit K. Zayn, Capital for $1,500, debit H. Perez, Capital for $1,500, and credit T. Rasheed, Capital for $3,000. After the entry is posted, Rasheed will have a zero balance in his capital account and we can distribute the remaining cash to our two partners.
The entry to distribute the partnership’s cash will be a debit to K. Zayn, Capital for $17,500, debit H. Perez, Capital for $6,500, and credit Cash for $24,000. The partnership is now dissolved. However, Rasheed still owes $1,500 to Zayn and Perez.

37. Global View
Partnership accounting according to U. S. GAAP is similar, but not identical, to that under IFRS.
Both U. S. GAAP and IFRS include broad and similar guidance for partnership accounting. Partnership organization is similar worldwide, however, different legal systems dictate different implications and motivations for how a partnership is effectively set up.
The account for partnership admission, withdrawal, and liquidation is likewise similar worldwide. However, different legal systems impact partnership agreements and their implication to the parties.
Partnership accounting according to U. S. GAAP is similar, but not identical, to that under IFRS.
Both U. S. GAAP and IFRS include broad and similar guidance for partnership accounting. Partnership organization is similar worldwide, however, different legal systems dictate different implications and motivations for how a partnership is effectively set up.
The account for partnership admission, withdrawal, and liquidation is likewise similar worldwide. However, different legal systems impact partnership agreements and their implication to the parties.

38. Partner Return on Equity
Partner net income Average partner equity =
We can calculate the return on partner’s equity by dividing partner net income by the average partner capital balance. This is an interesting table because it shows the return on partner capital for the Boston Celtics. Notice that we have two limited partnerships labeled LP one and LP two, and the Celtics limited partnership.
For this example, partner return on equity is computed by dividing $216 (net income) by the average of beginning capital ($84) plus ending capital ($252).
216/[(85+253)/2] = 128%

39. End of Chapter 12
End of Chapter 12.