Chap016Day1_class - Chapter 16 Partnership Liquidation...

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1 Chapter 16 Partnership Liquidation ± Overview ± Lump-Sum Liquidations ± Installment Liquidations
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2 Reasons for Termination: ± Personality disputes between partners ± Retirement ± Death ± Changed business environment ± Other opportunities ± Low profits ± Bankruptcy (either of the business or an individual partner)
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3 When the partners wish to terminate the business: ± Convert all assets to cash. ± Allocate all gains or losses to the partner capital balances. ± Pay all liabilities. ± Distribute remaining cash to partners.
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4 Smith & Jones want to liquidate their partnership. Balances at 3/31/06 are: Balance Sheet 3/31/06 Assets Liabilities and Capital Cash 8,000 $ Accts. Payable 45,000 $ A/R 35,000 Smith, Capital 80,000 Inventory 42,000 Jones, Capital 120,000 160,000 Total 245,000 $ Total 245,000 $ Termination & Liquidation Example
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5 Example According to their partnership agreement, Smith and Jones divide profits 60:40 respectively. On 4/1, the inventory is sold for $35,000. According to their partnership agreement, Smith and Jones divide profits 60:40 respectively. On 4/1, the inventory is sold for $35,000.
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6 Example Date Description Debit Credit Cash 35,000 Smith, Capital 4,200 Jones, Capital
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This note was uploaded on 05/01/2010 for the course MGMT 503 taught by Professor Staff during the Spring '08 term at Purdue University-West Lafayette.

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Chap016Day1_class - Chapter 16 Partnership Liquidation...

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