Chapter 3 Partnership Liquidation and Incorporation

Chapter 3
Partnership Liquidation and

Incorporation; Joint Ventures
All examples are from

textbook by Larsen
ACCT 501
Objectives 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 Incorporation

2
Liquidation 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.
3
Liquidation 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.
4
Liquidation 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.

5
Distribution 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, and
3. Payment of partners' capital account
credit balances.
6
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.
7
Partners (contd.)

The existence of partner's loan
account will not advance the time of
payment of any partner during the
liquidation.

Consequently,the loan to the
partnership is often treated as capital
during the liquidation.

8
Partners (contd.)

It is possible that partners are willing to
receive assets other than cash for
settlement.

Regardless whether assets other than
cash are distributed to partners, the
distribution rule must be followed.

9
Payment to Partners of an LLP after All
Noncash Assets Realized

Five situations are discussed:
A. Equity of every partner is sufficient to
absorb loss from realization.
B. Equity of one partner is not sufficient to
absorb that partner's share of loss from
realization.
C. Equity of two partners are not sufficient to
absorb their shares of loss from realization.

10
Noncash Assets Realized(contd.)
D. Partnership is insolventa but
partners are solventb.
E. General partnership is insolvent
and partners are insolvent.
a. The partnership is unable to pay all

outside creditors and at least one
partner has a deficit capital account.

11
Noncash Assets Realized(contd.)
b. The partner has personal assets in
excess of liabilities.
Note: the partnership is solvent in

situations A, B and C.

12
Payment to Partners after All Noncash Assets realized
A. Equity of Each Partner is Sufficient to
Absorb Loss from Realization

Assume that Abra and Barg, who share
income/losses equally, decide to
liquidate Abra & Barg LLP. A balance
sheet on 6/3/99, just prior to liquidation
follows:

13
Absorb Loss from Realization (contd.)
ABRA & BARG LLP
Balance Sheet
June 30, 1999
Assets Liabilities & Partners’ Capital

Cash $10,000 Liabilities $20,000
Other assets 75,000 Loan payable to 20,000
Barg
Abra, capital 40,000
Barg, capital 5,000
Total $85,000 Total $85,000
14
Absorb Loss from Realization (contd.)

Additional information:

The noncash assets with a carrying
amount of $75,000 realized cash of
$35,000.

The loss of $40,000 is divided equally by
the partners.

After the allocation of realization loss,
Barg's capital has a deficit of $15,000.

15
statement of realization and
liquidation for Abra & Barg LLP
Assets Partner’ Capital
Cash Other Liabilities Barg, loan Abra(50%) Barg (50%)
Balances before $10,000 $75,000 $20,000 $20,000 $40,000 $ 5,000

liquidation
Realization of other 35,000 (75,000) (20,000) (20,000)
assets at a loss of
$40,000
Balances $45,000 $20,000 $20,000 $20,000 $(15,000)
Payment to (20,000) (20,000)
creditors
Balances $25,000 $20,000 $20,000 $(15,000)
Offset Barg’s capital (15,000) 15,000
deficit against
Barg’s loan
Balances $25,000 $5,000 $20,000 $ -0-
Payments to (25,000) (5,000) (20,000) $ -0-
partners Partnership Liquidation and Incorporation
16
Note to the statement of realization and

Partners Abra and Barg received
$20,000 and $5,000, respectively,
after partnership creditors had been
paid in full.

The checks to both partners should
be delivered to the partners at the
same time.

17

Thus, the legal priority of a partner's loan
account has no significance in
determining either the amount of cash
paid to a partner or the timing of cash
payments to partners during liquidation.

In the above statement, Barg's loan
account balance of $20,000 and capital
account balance of $5,000 can be
combined to obtain an equity of $25,000
for Barg prior to allocation/distribution.
18
liquidation for Abra & Barg LLP (contd.)

In the following examples, a
partner's loan account balance (if
any) is combined with the partner's
capital account balance in the
statement of realization and
liquidation.

19
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 realization

In this case, the loss on realization of
assets results in a deficit balance in
the capital account of one of the
partners.

Assume the balance sheet below for
Diel, Ebbs & Frey LLP just prior to
liquidation:

20
B. Equity of One Partner is Not Sufficient to Absorb
That Partner's Share of Loss from realization (contd.)
Diel, Ebbs & Frey LLP
Balance Sheet
May 20, 1999
Other assets 80,000 Diel, capital 40,000
Ebbs, capital 21,000
Frey, capital 9,000
Total $100,000 Total $100,000

21

The income sharing ratio is Diel, 20%; Ebbs;
40% and Grey, 40%.

The other assets with a carrying amount of
$80,000 realized $50,000 cash.

After dividing the loss of $30,000 among the
partners, Frey has a deficit of $3,000 in his
capital account.

Assuming Frey pays the $3,000 to the
partnership immediately, the statement of
realization and liquidation is as follows:
22
Statement of Realization and Liquidation for
Deil, Ebbs & Frey LLP (5/21 through 5/31/99)
Cash Other Liabilities Diel(20%) Ebbs(40%) Frey(40%)
Balances before $20,000 $80,000 $30,000 $40,000 $21,000 $ 9,000
liquidation
Realization of 50,000 (80,000) (6,000) (12,000) (12,000)
other assets at a
loss of $30,000
Balances $70,000 $30,000 $34,000 $9,000 $(3,000)
Payment to (30,000) (30,000)
creditors
Balances $40,000 $34,000 $9,000 $(3,000)
Cash received 3,000 3,000
from Frey
Balances $43,000 $34,000 $9,000 $ -0-
Payments to (43,000) (34,000) (9,000) $ -0-
partners

23

Assuming Grey was not able to pay
the $3,000 deficit to the partnership
immediately and the cash available
after payment to creditors is to be
distributed to Deil and Ebbs without a
delay, the statement of realization and
liquidation would be as follows:

24
Statement of Realization and Liquidation for Deil,
Ebbs & Frey LLP – Frey Cannot Pay $3,000
immediately
Cash Other Liabilities Diel(20%) Ebbs(40%) Frey(40%)
Balances $20,000 $80,000 $30,000 $40,000 $21,000 $ 9,000
before
liquidation
Realization of 50,000 (80,000) (6,000) (12,000) (12,000)
other assets at
a loss of
$30,000
Balances $70,000 $30,000 $34,000 $9,000 $(3,000)
Payment to (30,000) (30,000)
creditors
Balances $40,000 $34,000 $9,000 $(3,000)
Payments to (40,000) (33,000) (7,000)
partners
Balances $1,000 $2,000 $ (3,000)
25
Notes to the above Statement

The possible additional loss if Frey is
unable to pay $3,000 is charged to Diel
and Ebbs in the ratio of 1/3 ($1,000)
and 2/3 ($2,000), respectively.

Therefore, the cash available of
$40,000 to partners is divided between
Diel and Ebbs in a manner that
reduces Deil's capital and Ebb's capital
to $1,000 and $2,000, respectively.
26
Notes to the above Statement (contd.)

Thus, if Frey is not able to pay
$3,000, the loss can be all absorbed
by remaining partners based on
their income sharing ratio.

If the $3,000 is later collected from
Frey, this amount will be divided
$1,000 to Diel and $2,000 to Ebbs.

The forgoing statement then can be
completed as follows:
27
The Completion of the Statement of
Realization and Liquidation When $3,000
Collected from Frey

Cash Liabilities Diel Ebbs Frey
(20%) (40%) (40%)
Balances (from page $1,000 $2,000 $(3,000)
25)
Cash received from $3,000 3,000
Frey
Payments to partners (3,000) (1,000) (2,000)

28
The Completion of the Statement of
Realization and Liquidation When $3,000 is
Uncollectible from Frey
However, if the $3,000 is uncollectible, the
statement would be completed with the write-
off Frey's Capital as follows:
Cash Liabilities Diel Ebbs Frey
(20%) (40%) (40%)
Balances (from page $1,000 $2,000 $(3,000)
25)
Additional loss from (1,000) (2,000) 3,000
Frey’s uncollectible
capital deficit

29
C. Equity of Two Partners Are Not
Sufficient to Absorb Their Shares of Loss from
Realization

It is apparent that the inability to
collect deficit of a partner will result
in additional loss to the other
partners as in example B when
$3,000 is uncollectible.

This additional loss could cause a
second partner to have a deficit in
the capital account, which may or
may not be collectible.
30
C. Equity of Two Partners Are Not Sufficient to
Absorb Their Shares of Loss from Realization (contd.)

Example: Assume that Judd, Kamb. Long
and Marx, partners of Judd, , Kamb. Long
& Marx LLP, share income /losses 10%,
20%, 30% and 40%, respectively.

Their capital account balances for the
period 8/1 through 8/15, 1999, are as
shown in the following statement of
realization and liquidation (p29),
supported by the exhibit that follows
(p30).
31
Statement of Realization and Liquidation for
Judd, Kamb, Long& Marx LLP (8/1 through
8/15/1999)
Assets Partners’ Capital
Cash Other Liabilities Judd Kamb Long Marx
(10%) (20%) (30%) (40%)
Balances $20,000 $200,000 $120,000 $30,000 $32,000 $30,000 $8,000
before
liquidation
Realization of 120,000 (200,000) (8,000) (16,000) (24,000) (32,000)
other assets at
a loss of
$80,000
Balances $140,000 $120,000 $22,000 $16,000 $6,000 $(24,000)
Payment to (120,000) (120,000)
creditors
Balances $20,000 $22,000 $16,000 $6,000 $(24,000)
Payments to (20,000) (16,000) (4,000)
partners
Balances $6,000 $12,000 $6,000 $(24,000)

32
Exhibit: Computation of Cash Payments to
Partners of Judd, Kamb, Long & Marx LLP –
8/15/1999
Partners’ Capital
Judd(10%) Kamb(20%) Long(30%) Marx(40%)
Capital account balances $22,000 $16,000 $6,000 $(24,000)
before distribution of cash
to partners
Additional loss to Judd, (4,000) (8,000) (12,000) 24,000
Kamb, and Long if Marx’s
deficit is uncollectible
(ratio of 10:20:30)
Balances $18,000 $8,000 $(6,000)
Additional Loss to Judd (2,000) (4,000) 6,000
and Kamb if Long’s deficit
is uncollectible (ratio of
10:20)
Amounts that may be $16,000 $4,000
paid to partners Partnership Liquidation and Incorporation
33
Payment to Partners after All Noncash Assets realized D.
Partnership Is Insolvent but Partners Are
Solvent

In the case of insolvency in a LLP, the
total of the capital account debit balance
will exceed the total of the credit
balances.

If the partner(s) with a deficit capital
balance pay off the deficit to the
partnership, the LLP will have sufficient
cash to pay its liabilities in full.

34
Solvent (contd.)

The creditors of LLP may demand
payment from any solvent partner whose
actions caused the partnership's
insolvency, regardless of whether the
partner's capital had a debit or a credit
balance.

A partner who makes payments to
partnership creditors receives a credit to
his/her capital account.
35
Solvent (contd.)

Example: Assume that Nehr, Ordo & Page
LLP, whose partners share net
income/losses equally,had the following
balance sheet prior to liquidation on 5/1/1999:
Other assets 85,000 Nehr, capital 18,000
Ordo, capital 10,000
Page, capital 7,000
Total $100,000 Total $100,000
36
Solvent

On 5/12/99, the other assets with a carrying
amount of $85,000 realize $40,000 cash. The
loss of $45,000 is to be divided equally among
the partners.

The total cash of $55,000 is paid to the
creditors, which leaves unpaid liabilities of
$10,000.

The capital balances of partner Nehr, Ordo and
Page are $3,000, ($5,000) and ($8,000),
respectively after absorbing the realization loss
of noncash assets.
37
Solvent

Assuming that on 5/30/99, Ordo and Page
pay off their deficiencies, the LLP will use
$10,000 of the $13,000 available cash to
pay the remaining liabilities.

The LLP will then distribute $3,000 to
Nehr.

These events are summarized in the
statement of Realization and Liquidation
on the following page.
38
The Statement of Realization and
Liquidation of Nehr, Ordo & Page LLP
Cash Other Liabilities Nehr(1/3) Ordo(1/3) Page(1/3)
Balances before $15,000 $85,000 $65,000 $18,000 $10,000 $ 7,000
liquidation
Realization of 40,000 (85,000) (15,000) (15,000) (15,000)
other assets at a
loss of $45,000
Balances $55,000 $65,000 $3,000 $(5,000) $(8,000)
Payment to (55,000) (55,000)
creditors
Balances $ -0- $10,000 $3,000 $(5,000) $(8,000)
Cash invested by 13,000 5,000 8,000
Ordo and Page
Balances $3,000
Final Payment to
Creditors (10,000) (10,000)
Balances 3,000 3,000
Payment to Nehr
(3,000) (3,000)
39
Solvent (contd.)

If the insolvency of the LLP is due to an
adverse award of damages in a lawsuit,
and the partner(s) responsible for the
damages are solvent, they alone must pay
the damages that the LLP is unable to
pay.

However, if such partner(s) also are
insolvent, both they and the LLP may
have to file for liquidation under Chapter 7
of the U.S. Bankruptcy Code.
40
Payment to Partners after All Noncash Assets realized E.
General Partnership Is Insolvent and
Partners Are Insolvent

All the above cases applies to both LLP
and general partnership.

The case discussed here only applies to
the general partnership and both the
partnership and some partners are
insolvent.

The question raised here is the relative
rights of creditors of the partnership and
the partners.
41
Partners Are Insolvent (contd.)

The rule provided by the UPA is that
assets of the partnership (including
partners' capital deficits) are first
available to creditors of the
partnership.

Assets of the partners are first
available to their creditors.

42

After the liabilities of the partnership
have been paid in full, the creditors of
an individual partner have a claim
against the assets of the partnership
to the extent of that partner's equity in
the partnership.

43

On the other hand, after the creditors of
a partner have been paid in full, any
remaining assets of that partner are
available to partnership creditors.

This principle applies regardless of
whether that partner's capital balance
has a credit or a debit balance.

One condition of this principle is that
these creditors are unable to obtain
payment from the partnership.
44
The Relative rights of Creditors of an Insolvent
General Partnership and Personal Creditors- An
Example
Assume that the Rich,Sand & Toll Partnership, a
general partnership whose partners share net
income and losses equally,has the partnership
balance sheet below prior to liquidation on
11/30/99:
Other assets 100,000 Rich, capital 5,000
Sand, capital 15,000
Toll, capital 30,000
Total $110,000 Total $100,000
45
Example (contd.)
Assume that on 11/30/99, the partners
have the following assets and liabilities
other than their equities in the
partnership:
Partner Personal Assets Personal Liabilities
Rich $100,000 $25,000
Sand 50,000 50,000
Toll 5,000 60,000

46
Example (contd.)

Assume that the realization of other
assets of the partnership results in a loss
of $60,000, as shown in the following
statement of realization and liquidation
for the period 12/1/ through 12/12/99:

47
The Statement of Realization and Liquidation of
Rich, Sand & Toll (12/1 through 12/12/99)
Cash Other Liabilities Rich(1/3) Sand(1/3) Tall(1/3)
Balances $10,000 $100,000 $60,000 $5,000 $15,000 $30,000
before
liquidation
Realization of 40,000 (100,000) (20,000) (20,000) (20,000)
other assets at
a loss of
$60,000
Balances $50,000 $60,000 $(15,000) $(5,000) $10,000
Payment to (50,000) (50,000)
creditors
Balances $10,000 $(15,000) $(5,000) $10,000

48
Notes to the Statement

There is still $10,000 liabilities unpaid
after exhausting all cash available in the
partnership.

The creditors of the partnership can
onlya collect these liabilities in full from
Rich (who is personally solvent)
regardless whether Rich's capital
balance has a debit or credit balance.

49
Rich, Sand & Toll (12/1 through 12/12/99)(contd.)
The Statement is continued below (on p50 & 51)
to show Rich's Payment of the final $10,000
owed to partnership's creditors:
Partner’ Capital
Cash Liabilities Rich(1/3) Sand(1/3) Toll(1/3)
Balances (from above) $10,000 $(15,000) $(5,000) $10,000
Payment by Rich to (10,000) 10,000
partnership creditors
Balances $(5,000) $(5,000) $10,000
Cash invested by Rich $5,000 5,000
Balances $5,000 $(5,000) $10,000
Payment to Toll (or (5,000) (5,000)
Toll’s creditors)
Balances $(5,000) $5,000
50
Rich, Sand & Toll (12/1 through 12/12/99)(contd.)
Partner’ Capital
Cash Rich (1/3) Sand Toll (1/3)
(1/3)
Balances (from Page 50) $(5,000) $5,000
Write-off of Sand’s capital deficit as $(2,500) 5,000 (2,500)
uncollectible
Balances $(2,500) $2,500
Cash invested by Rich $2,500 2,500
Balances $2,500 $2,500
Payment to Toll (or Toll’s creditors) (2,500) (2,500)

51
Notes to the Statement on p50
1. Due to the abundant personal assets,

Rich is able to paid $5,000 needed to
offset its capital deficit in the partnership.
2. This $5,000 cash is paid to partner Toll
(or Toll's creditors), the only partner with
a credit balance of capital account.

52
Notes to the Statement on p51
1. The continued statement shows that

Sand owes $5,000 to the partnership.
2. Nevertheless, Sand's personal assets
are just sufficient to cover his personal
liabilities.
3. Therefore, Sand's deficit of $5,000 in his
capital is a loss to the partnership and
will be absorbed by the other two
partners equally.
53
Notes to the Statement on p51 (contd.)
4. As a result, Rich and Toll have capital
balances of deficit $2,500 and credit
$2,500, respectively, after absorbing the
$5,000 loss from Sand's deficit in capital.
5. Since Rich is personally solvent, he will
pay $2,500 to the partnership to offset his
deficit.
6. This $2,500 cash will go to Toll (or Toll's
creditors) since Toll is the one with credit
balance in capital.
54
Conclusions of this Liquidation
 The final result of this liquidation is that
the partnership creditors receives
payment in full due to the financial status
of Rich.
 The personal creditors of Sand are paid
in full.
 The personal creditors of Toll are paid
$12,500 (Toll's personal assets of
$5,000 + $7,500 from Rich's payment to
the partnership to cover Rich's deficit).
55
Installment Payments to Partners
 In all previous case, cash payments to
partners in liquidation are made only
after all noncash assets being realized
and realized losses being divided.
 Due to the liquidation process can extent
to several months, the partners may
want to receive cash as it becomes
available rather than waiting until all
noncash assets have been realized.
56
Installment Payments to Partners (contd.)
 Liquidation in installments is a process
of realizing some assets, paying
creditors, paying the remaining available
cash to partners, realizing additional
assets and making additional cash
payments to partners.
 Installment payments to partners are
appropriate if necessary safeguards are
used to ensure that all partnership
creditors are paid in full.
57
 Also no partners are paid more than the
amount to which they would be entitled
after all losses on realization of assets
are known.
 The danger to an installment liquidations
is that the liquidator authorizes cash
payment to partners before all losses in
the liquidation are known.

58
 If payments are made to partners and
later losses cause deficits in the
partner's capital accounts, the liquidator
will be responsible for the recovery of
these deficits.
 Due to this danger, the safe policy for
determining installment cash payments
to partners is the following worst-case
scenario:
59
General Rules for Installment Payments to
Partners
1. Assume a total loss on all remaining
noncash assets, and provide for all
possible losses, including potential
liquidation costs and unrecorded
liabilities.
2. Assume that partner(s) with potential
capital deficits will be unable to pay
anything to the partnership.

60
Partners (contd.)
 Thus, the distribution of cash in
installment payment as if no more cash
will be forthcoming, either from
realization of assets or from collection of
capital deficits from partners.
 Therefore, cash payment to a partner
only if that partner has a capital (plus
loan) account credit balance in excess of
the amount required to absorb his/her
share of maximum possible loss that
may incur on liquidation.
61
Partners (contd.)
 When these installment payment rules
are followed, the effect is to bring the
equities of the partner to the income-
sharing ratio as quickly as possible.
 The following example (from P3-4 of the
textbook) illustrates an installment
payment on liquidation following the
aforementioned rules.

62
Installment Payments to Partners- an
Example
 Carson and Worden decided to dissolve
and liquidate Carson& Worden LLP on
9/23/99. On that date, the balance sheet
of the partnership was as follows:

63
Example (contd.)
Carson &Worden LLP
Balance Sheet
Sep. 23, 1999
Other assets 100,000 Loan payable to 10,000
Worden
Carson, capital 60,000
Worden,capital 20,000
Total $105,000 Total $100,000
64
Example (contd.)
 On Sep. 23, 1999, noncash assets with
a carrying amount of $70,00 realized
$60,000 and $64,000 was paid to
creditors and partner.
 $1,000 is retained to cover possible
liquidation cots.
 On 10/1/1999, the remaining noncash
assets realized $18,000 (net of
liquidation costs), and all available cash
was distributed to partner.
65
Example (contd.)
 Carson and Worden share net income and
losses 40% and 60%, respectively.
 Required:
1) Prepare a cash distribution program for
Carson &Worden LLP on 9/23/99.
2) Determine the appropriate distribution of
cash to partners as it becomes available.
3) Prepare journal entries for the LLP on 9/23
and 10/1 to record the realization of assets
and distribution of cash to creditors and
partners.
66
Cash Distribution Program for Carson
&Worden LLP
Carson & Worden LLP
Cash Distribution Program
September 23, 1999
Creditors Carson Worden
First $15,000 100%
Next 40,000 100%
All over $55,000 40% 60%

67
Distribution of Cash to Partners
Carson & Worden LLP
Working Paper for Cash Distribution to Partners during
Liquidations
September 23, 1999
Capital account balances before liquidation $60,000 $30,000
(including $10,000 loan payable to Warden)
Income-sharing ratio 2 3
Capital per unit of income (loss) sharing $30,000 $10,000
Reduce Carson’s balance to Worden’s balance;
Carson receives $40,000 ($20,000X2) (20,000)
Capital per unit of income (loss) sharing $10,000 $10,000

68
Journal Entries to Record the Realization of
Assets and Distribution of Cash to Creditors and
Partners.
Carson & Worden LLP
Journal Entries
1999
Sept 23 Cash 60,000
Carson,Capital ($10,000X0.40) 4,000
Worden, Capital ($10,000X0.60) 6,000
Other Assets 70,000
To record realization of assets at a loss of
$10,000, divided between Carson and Worden in
2:3 ratio.
23 Trade Accounts Payable 15,000
Loan Payable to Worden 5,400
Carson, Capital 43,600
Cash 64,000
69
Journal Entries (contd.)
1999
Oct 1 Loan Payable to Worden ($10,000-$5,400) 4,600
Carson, Capital (balance of capital account) 7,600
Worden, Capital (balance of capital account) 6,800
Cash 19,000
To record distribution of cash to partners.

70
Withholding of Cash for Liabilities and
Liquidation Costs
 Costs of liquidation are treated as part of
the total loss from liquidation and are
deducted from partner's capital
accounts.
 It is reasonable to withhold cash for the
payments of recorded liability or costs
when these liabilities or costs were not
paid prior to the payments to partners.

71
Liquidation of Limited Partnerships
 Most of the prior discussion of the
liquidation of LLP and general
partnerships applies to the liquidation of
limited partnerships except the following:
 The ULP Act provides that after outside
creditors of a limited partnership have
been paid, the equities of the limited
partners must be paid before the general
partner(s) may receive any cash.
72
Liquidation of Limited Partnerships
 Also, the limited partners may agree that
one or more of them may have priority
over the others regarding payments in
liquidation.

73

Chapter 3 Partnership Liquidation and Incorporation

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What are the steps involved in liquidating a partnership?

What are the steps involved in liquidating a partnership?

How are gains or losses from asset realization divided among partners?

How are gains or losses from asset realization divided among partners?

Chapter 3

Partnership Liquidation and

All examples are from

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

a. The partnership is unable to pay all

Partnership Liquidation and Incorporation

Note: the partnership is solvent in

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Assets Liabilities & Partners’ Capital

Partnership Liquidation and Incorporation

Balances before $10,000 $75,000 $20,000 $20,000 $40,000 $ 5,000

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Diel, Ebbs & Frey LLP

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Assets Partner’ Capital

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

1. Due to the abundant personal assets,

Partnership Liquidation and Incorporation

1. The continued statement shows that

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

Partnership Liquidation and Incorporation

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