Chapter 15: Liquidation of Partnerships Flashcards
What three steps are included in the liquidation of a partnership?
- Noncash partnership assets are sold for cash
- partnership liabilities and expenses are paid
- any remaining cash is distributed to partners based on respective capital balances
How do you account for an asset sale loss?
DB CASH
DB CAPITAL BALANCE ACCOUNT FOR %
CR ASSET
How do you record payment of liquidation expenses as a direct reduction to a partners’ capital account?
DB Capital Account
CR Cash
How do you record the distribution of cash to partners in accordance with final capital balances ?
DB Capital Account
CR Cash
What does the statement of partnership liquidation reflect?
transactions to date, assets still held by the partnership, liabilities remaining to be paid, current cash and capital balances
What are the journal entries when a partner decides to extinguish their own negative balance?
DB Cash
CR Partner’s capital balance account
How do you record the allocation of a deficit capital balance because of an insolvent partner?
Based on relative profit and loss ratio
DB Capital (partner 1)
CR Capital for insolvent partner
How do you calculate safe payments?
Multiply partners profit/loss by the deficit balance and subtract from the capital balance account
How do you account for a loan from a partner?
as of the loan were a part of the partner’s capital
What is the proposed schedule of liquidation based on?
the underlying assumption that all future events will result in total losses
liquidation made in installments
numerous cash distributions are made as noncash assets are sold
A predistribution plan
is developed by simulating a series of losses, each of which is large enough to eliminate, on at a time, all of the partners’ claims to partnership property
