Chapter 3Objectives of the ChapterLiquidation of a PartnershipLiquidation of a Partnership (contd.)Slide 5Distribution of Cash or Other Assets to PartnersDistribution of Cash or Other Assets to Partners (contd.)Slide 8Slide 9Payment to Partners of an LLP after All Noncash Assets RealizedPayment to Partners of an LLP after All Noncash Assets Realized(contd.)Slide 12Payment to Partners after All Noncash Assets realized A. Equity of Each Partner is Sufficient to Absorb Loss from RealizationPayment to Partners after All Noncash Assets realized A. Equity of Each Partner is Sufficient to Absorb Loss from Realization (contd.)Payment to Partners after All Noncash Assets realized A. Equity of Each Partner is Sufficient to Absorb Loss from Realization (contd.)statement of realization and liquidation for Abra & Barg LLPNote to the statement of realization and liquidation for Abra & Barg LLPSlide 18Note to the statement of realization and liquidation for Abra & Barg LLP (contd.)Payment to Partners after All Noncash Assets realized B. Equity of One Partner is Not Sufficient to Absorb That Partner's Share of Loss from realizationB. Equity of One Partner is Not Sufficient to Absorb That Partner's Share of Loss from realization (contd.)Slide 22Statement of Realization and Liquidation for Deil, Ebbs & Frey LLP (5/21 through 5/31/99)Slide 24Statement of Realization and Liquidation for Deil, Ebbs & Frey LLP – Frey Cannot Pay $3,000 immediatelyNotes to the above StatementNotes to the above Statement (contd.)The Completion of the Statement of Realization and Liquidation When $3,000 Collected from FreyThe Completion of the Statement of Realization and Liquidation When $3,000 is Uncollectible from FreyPayment to Partners after All Noncash Assets realized C. Equity of Two Partners Are Not Sufficient to Absorb Their Shares of Loss from RealizationC. Equity of Two Partners Are Not Sufficient to Absorb Their Shares of Loss from Realization (contd.)Statement of Realization and Liquidation for Judd, Kamb, Long& Marx LLP (8/1 through 8/15/1999)Exhibit: Computation of Cash Payments to Partners of Judd, Kamb, Long & Marx LLP – 8/15/1999Payment to Partners after All Noncash Assets realized D. Partnership Is Insolvent but Partners Are SolventPayment to Partners after All Noncash Assets realized D. Partnership Is Insolvent but Partners Are Solvent (contd.)Slide 36Slide 37Slide 38The Statement of Realization and Liquidation of Nehr, Ordo & Page LLPSlide 40Payment to Partners after All Noncash Assets realized E. General Partnership Is Insolvent and Partners Are InsolventPayment to Partners after All Noncash Assets realized E. General Partnership Is Insolvent and Partners Are Insolvent (contd.)Slide 43Slide 44The Relative rights of Creditors of an Insolvent General Partnership and Personal Creditors- An ExampleThe Relative rights of Creditors of an Insolvent General Partnership and Personal Creditors- An Example (contd.)The Relative rights of Creditors of an Insolvent General Partnership and Personal Creditors- An Example (contd.)The Statement of Realization and Liquidation of Rich, Sand & Toll (12/1 through 12/12/99)Notes to the StatementThe Statement of Realization and Liquidation of Rich, Sand & Toll (12/1 through 12/12/99)(contd.)Slide 51Notes to the Statement on p50Notes to the Statement on p51Notes to the Statement on p51 (contd.)Conclusions of this LiquidationInstallment Payments to PartnersInstallment Payments to Partners (contd.)Slide 58Slide 59General Rules for Installment Payments to PartnersGeneral Rules for Installment Payments to Partners (contd.)Slide 62Installment Payments to Partners- an ExampleInstallment Payments to Partners- an Example (contd.)Installment Payments to Partners- an Example (contd.)Slide 66Cash Distribution Program for Carson &Worden LLPDistribution of Cash to PartnersJournal Entries to Record the Realization of Assets and Distribution of Cash to Creditors and Partners.Journal Entries (contd.)Withholding of Cash for Liabilities and Liquidation CostsLiquidation of Limited PartnershipsSlide 73All examples are from textbook by Larsen ACCT 501Chapter 3Partnership Liquidation and Incorporation; Joint VenturesPartnership Liquidation and Incorporation2Objectives of the ChapterTo learn the accounting procedures for liquidation of limited liability partnerships (LLPs).To discuss accounting issues related to incorporation of a LLP.To discuss accounting for corporate and unincorporated joint ventures.Partnership Liquidation and Incorporation3Liquidation of a PartnershipThe liquidation of a LLP means discontinuing its activities.The procedures usually include selling assets, paying liabilities, and distributing any remaining cash to the partners.The liquidation process often starts with the realization of noncash assets.Partnership Liquidation and Incorporation4Liquidation of a Partnership (contd.)Any gains or losses resulting from the assets realization are divided among partners based on the income sharing ratio.The capital balances after the allocation of gains/losses are the basis for settlement.No cash can be distributed to partners until all liabilities are paid off.Partnership Liquidation and Incorporation5Liquidation of a Partnership (contd.) If cash of LLP is insufficient to pay liabilities in full, an unpaid creditor may collect from the personal assets of any solvent partner whose actions caused the partnership's insolvency, regardless whether that partner has a credit or a debit capital account balance.Partnership Liquidation and Incorporation6Distribution of Cash or Other Assets to PartnersThe Uniform Partnership Act lists the order for distribution of cash by a liquidating partnership as:1. Payment of creditors in full,2. Payment of loans from partners, and3. Payment of partners' capital account credit balances.Partnership Liquidation and Incorporation7Distribution of Cash or Other Assets to Partners (contd.)However, if a partner's capital account has a deficit, that partner's loan to the partnership must be offset against the deficit in his/her capital account (referred to as the right of offset). Thus, the cash received by a partner is the same as if loans to the partnership had been recorded in the partner's capital account.Partnership Liquidation and Incorporation8Distribution of Cash or Other Assets to Partners (contd.)The existence of partner's loan account will not advance the time of payment of any partner during the