2. 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.

3. 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.

4. 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

5. 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

6. 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

7. 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

8. 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

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

10. 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

11. 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

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

13. 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

14. 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

15. 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

16. 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

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

18. 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

19. 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

20. 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

21. End of