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Lecture Advanced accounting (6th Edition): Chapter 16 - Jeter, Chaney

Chapter 16 - Partnership liquidation. In this chapter, we will discuss how partnerships are liquidated. While it might seem like a simple process to turn all of the partnership’s assets to cash, to pay liabilities, and to distribute any remaining cash, it’s not an easy task. It can sometimes take many months to finally liquidate the partnership. | Partnerships Liquidation 1 Learning Objectives Describe the steps used to distribute available partnership assets in liquidation under the Uniform Partnership Act (UPA). List the order of priority for each class of creditors in partnership liquidation under the UPA. Prepare a liquidation schedule to settle debts and allocate assets. Prepare a “safe payment approach” liquidation schedule. Describe the four steps in the preparation of an advance plan for the distribution of cash in a partnership liquidation. Prepare the journal entries to incorporate a partnership. 2 Steps in the Liquidation Process First Step: Compute net income or loss up to the date of dissolution. The closing process should be completed and any net income or loss should be allocated to the partners in accordance with their profit and loss agreement. Second Step: Assets not acceptable for distribution in their present form are converted into cash. Last Step: Distribute available assets to creditors and partners. Follow the provisions of Section 40(b) of the Uniform Partnership Act (UPA). 3 LO 1 Steps in the liquidation process. Steps in the Liquidation Process Section 40(b) of the Uniform Partnership Act (UPA) Liabilities rank in order of payment, as follows: Liabilities to creditors other than partners, Liabilities to partners other than for capital and profits (such as loans), Liabilities to partners in respect of capital, Liabilities to partners in respect of profits. 4 LO 1 Steps in the liquidation process. Steps in the Liquidation Process Review Question The first step in the liquidation process is to Convert noncash assets into cash. Pay partnership creditors. Compute any net income (loss) up to the date of dissolution. Allocate any gains or losses to the partners. 5 LO 1 Steps in the liquidation process. Priorities of Partnership and Personal Creditors UPA (Section 15) provides that partners are jointly liable for all contracts and other obligations of the partnership. Order of Priority . | Partnerships Liquidation 1 Learning Objectives Describe the steps used to distribute available partnership assets in liquidation under the Uniform Partnership Act (UPA). List the order of priority for each class of creditors in partnership liquidation under the UPA. Prepare a liquidation schedule to settle debts and allocate assets. Prepare a “safe payment approach” liquidation schedule. Describe the four steps in the preparation of an advance plan for the distribution of cash in a partnership liquidation. Prepare the journal entries to incorporate a partnership. 2 Steps in the Liquidation Process First Step: Compute net income or loss up to the date of dissolution. The closing process should be completed and any net income or loss should be allocated to the partners in accordance with their profit and loss agreement. Second Step: Assets not acceptable for distribution in their present form are converted into cash. Last Step: Distribute available assets to creditors and partners. .