If your name appears on the list, please stay seated at then end of class. Alex AlexanderArisa BurapharatYohan Abraham Ross HouserDanielle FranceOlivia

If your name appears on the list, please stay seated at then end of class.

Alex Alexander Arisa Burapharat Yohan AbrahamRoss Houser Danielle France Olivia DrennanNorman Jacob David Harris Mark DunnHannah Leyhew Noah Leo Jeffrey FralingerEdward Peterson James McClanahan Maria GarciaAmy Ray Katherine McConnell Heather GeldertMargaret-Mary S. Joshua Pereira Haley HoltJared Thorn Ashley Shank Bryan HowardShana Visconti Gabriel Vasco Adam Lessary

Stephanie Williams Dylan LienMeghann Wynne Tanner McAtee

Sean MoaklerAndrew PowellDecker SkeltonCourtney StewartJames Westbrook

Current Liabilities & PayrollChapter 11

Define Current Liability

• A debt that a company reasonably expects to pay…1. from existing current assets or through the creation of another current liability 2. within one year (or the companies operating cycle, if longer)

• short-term liabilities

• obligations due within one year or the company’s operating cycle (whichever is longer)

Uncertainty

• uncertainty in whom to pay (example: traded bonds)• uncertainty when to pay (example: retainers)• uncertainty in how much to pay (example: utility bills)

a contingent liability is recorded when an obligation exists from a past event if (1) an outflow of resources is likely to occur AND (2) the amount can be estimated reliably. They must be KNOWN and DETERMINABLE.

Contingent Libabilities

YES• Potential Legal Claims(if you want to see a company’s dirty laundry, read their footnotes)

• Debt Guarantees• Tax Assessments• Insurance Losses• Environmental Damages (EPA)

NO• Natural Disasters• New Discovery • Competition

(nothing in past triggers the obligation)

Name 3 liabilities that we have already talked about:

Name 3 liabilities that we have already talked about:

• Accounts payable• Notes payable• Unearned revenues

Let’s talk about some others…

Unearned Revenue

MTSU sold 10,000 season football tickets at $50 each for its five-game home schedule. The entry for the sales of season tickets is:8/6 Cash 500,000

Unearned Ticket Revenue 500,000(To record sale of 10,000 season tickets)

As each game is completed, this entry is made:10/3 Unearned Ticket Revenue 100,000

Ticket Revenue 100,000(To record football ticket revenues earned)

Sales Tax Payable example 1 (sales + tax)

IPG Grocery Store for the March 25 cash register reading showing sales of $10,000 and sales taxes of $500.

Mar. 25 Cash 10,500

Sales Revenue 10,000

Sales Taxes Payable 500

(To record daily sales and sales taxes)

When the taxes are remitted to the state taxing agency:Mar. 31 Sales Taxes Payable 500*

Cash 500*

(*Note Sales Taxes may be paid monthly or quarterly and would not be daily)

Sales Tax

Sales Tax Payable example 2 (cash collected, calculate tax)

To raise money, the parents of the Murfreesboro Soccer Club Striker’s run a concession stand during a weekend tournament. Final receipts total $6,780. They are informed by the league that they have to submit appropriate sales taxes(7% to TN and 2.75% to Murfreesboro).

1. How do you calculate the tax?

2. What journal entries need to be made?


To raise money, the parents of the Murfreesboro Soccer Club Striker’s run a concession stand during a weekend tournament. Final receipts total $6,780. They are informed by the league that they have to submit appropriate sales taxes(7% to TN and 2.75% to Murfreesboro).

1. How do you calculate the tax? s + ( s x 0.07) + (s x 0.0275) = $6,780 s (1.0975) = $6,780 s = $6,177.68



To raise money, the parents of the Murfreesboro Soccer Club Striker’s run a concession stand during a weekend tournament. Final receipts total $6,780. They are informed by the league that they have to submit appropriate sales taxes(7% to TN and 2.75% to Murfreesboro). 1. How do you calculate the tax? s + ( s x 0.07) + (s x 0.0275) = $6,780 s (1.0975) = $6,780 s = $6,177.68


June 10 Cash 6,780

Sales Revenue 6,177.68

Sales Taxes Payable 432.44

City Taxes Payable 169.88

(To record sales and sales taxes)

June 30 Sales Taxes Payable 602.32

Cash 602.32

“Ispa scientia potestas est.” ~Sir Francis Bacon (1597)

If you aren’t watching, employers can “make mistakes” when calculating your pay. Would you know if they did?

1. How much did you earn?2. How much should your employer be

taking out of your check for taxes, benefits, etc?

3. How much are they paying on your behalf?

4. Do your paystubs accumulate the year-to-date amounts correctly?

Payroll & Payroll Taxes Payable

Every employer incurs liabilities relating to employees’ salaries and wages.• Salaries and Wages Payable• (EMPLOYEE) Withholding Taxes - Federal and State Income Taxes

Payable and FICA Taxes Payable• Until the withholding taxes are remitted to the government taxing authorities,

they are carried as current liabilities.

• (EMPLOYER) Payroll Taxes - With every payroll, the employer incurs various payroll taxes levied upon the employer.

• employer’s share of Social Security (FICA) taxes and state and federal unemployment taxes.

Tax Rates

• FICA• Social Security – 6.2% Employee + 6.2% Employer (on first $117,000 of earnings [2014] )• Medicare – 1.45% Employee + 1.45% Employer (with an additional .9% on wages

over $200,000)

• FUTA - 0.8% Employer (1st $7,000)• SUTA – 5.4% Employer (1st $7,000)• FIT – employee only, withheld based on W-4• SIT – employee only, withheld based on W-4• LIT – employee only, usually a rate based on the city that you work in, not

the one you live in

Payroll EntriesEMPLOYEE: $100,000 payroll for the week of March 7, on which Cargo Corporation withholds taxes from its employees’ wages and salaries:

Mar. 7Salaries and Wages Expense 100,000FICA – Social Security Taxes Payable 6,200FICA – Medicare Taxes Payable 1,450Employee Federal Income Taxes Payable 21,864Employee State Income Taxes Payable 2,922Name-Any-Other-Benefit Payable 1,000Salaries and Wages Payable 67,564

(To record payroll and withholding taxes for the week ending March 7)Mar. 7Salaries and Wages Payable 67,564

Cash 67,564(To record payment of the March 7 payroll)

EMPLOYER: The employer’s share of Social Security (FICA) taxes and state and federal unemployment taxes would be recorded with the following entry:

Mar. 7Payroll Tax Expense 13,850FICA –Social Security Taxes Payable 6,200FICA – Medicare Taxes Payable 1,450Federal Unemployment Taxes Payable 800State Unemployment Taxes Payable 5,400

(To record employer’s payroll taxes on March 7 payroll)

Payroll EntriesWrite Checks….To each employee:5/10 Wages Payable 243.55

Cash 243.55To the Federal Government (quarterly with Form 941 for small companies or by depositing in bank monthly or bi-weekly):5/10 FICA - Social Security Tax Payable (x2) 12,400

FICA - Medicare Tax Payable (x2) 2,500Employee Income Tax Payable 21,864

Cash 36,764To the Federal Govy, separate check written for unemployment (annually):

FUTA Payable 800Cash 800

To the State Government:5/10 SUTA Payable 5,400

Cash 5,400Other:5/10 Various Insurance & Benefits Payable 1,000

Cash 1,000

P11-2A We will calculate one employee at

a time.

If your name appears on the list, please stay seated at then end of class.

Alex Alexander Arisa Burapharat Yohan AbrahamRoss Houser Danielle France Olivia DrennanNorman Jacob David Harris Mark DunnHannah Leyhew Noah Leo Jeffrey FralingerEdward Peterson James McClanahan Maria GarciaAmy Ray Katherine McConnell Heather GeldertMargaret-Mary S. Joshua Pereira Haley HoltJared Thorn Ashley Shank Bryan HowardShana Visconti Gabriel Vasco Adam Lessary

Stephanie Williams Dylan LienMeghann Wynne Tanner McAtee

Sean MoaklerAndrew PowellDecker SkeltonCourtney StewartJames Westbrook

P11-3A

ANNOUNCEMENTS:

CAT:The TN Sales Tax Rate is 7% and the City Sales Tax Rate is 2%. A company counts their cash drawer at the end of the night and has $10,000. What journal entry should they make to record sales?

1. Plan to attend a review session.

2. The study guide and practice financial statement problem are posted on D2L.

3. I will be in my office most of the time leading up to the Final, but call first so you don’t waste a trip. Office hours get a little crazy near the end of a semester due to meetings and student appointments.

4. If you were on the list last class period, please stay after class (AGAIN) for an additional announcement. Thanks!

CAT:Agenda1. Payroll Entries (one last time)2. Quiz 103. Surveys4. Partnership notes (begin)

S + 0.07S + 0.02S = 10,000

1.09S = 10,000

S = 9,174.31

Cash 10,000

Sales 9,174.31

State Sales Tax Payable 642.20

City Sales Tax Payable 183.49

Payroll Quiz

Chapter 10• Disposing of an asset• Selling an asset

• Gains and Losses• Depletion• Intangibles

The part we skipped on Exam III

Recording cashreceived (debit)or paid (credit).

Removing accumulateddepreciation (debit).

Update depreciation to the date of disposal.

Journalize disposal by:

Removing the asset cost (credit).

Recording again (credit)

or loss (debit).

Disposals of Plant AssetsP 2

A machine costing $9,000, with accumulated depreciation of $9,000 on December 31st of the previous year was discarded on

June 5th of the current year. The company is depreciating the equipment using the straight-line method over eight years with

zero salvage value.

Discarding Plant AssetsP 2

Equipment costing $8,000, with accumulated depreciation of $6,000 on December 31st of the previous year was discarded on

July 1st of the current year. The company is depreciating the equipment using the straight-line method over eight years with

zero salvage value.

Discarding Plant Assets

Step 1: Bring the depreciation up-to-date.

Step 2: Record discarding of asset.

P 2

Selling Plant AssetsP 2

On March 31st, BTO sells equipment that originally cost $16,000 and has accumulated depreciation of $12,000 at December 31st of the prior

calendar year-end. Annual depreciation on this equipment is $4,000 using straight-line depreciation. The equipment is sold for $2,500 cash.

Step 1: Update depreciation to March 31st.

Step 2: Record sale of asset at a loss (Book value $3,000 - $2,500 cash received).

Total cost,including

exploration anddevelopment,is charged to

depletion expenseover periods

benefited.

Extracted fromthe natural

environmentand reported

at cost lessaccumulated

depletion.

Natural Resources

Examples: oil, coal, goldExamples: oil, coal, gold

P 3

Cost Determinationand Depletion

P 3

Let’s consider a mineral deposit with an estimated 250,000 tons of available ore. It is purchased for $500,000, and we expect zero salvage value.

Depletion of Natural ResourcesP 3

Depletion expense in the first year would be:

Balance Sheet presentation of natural resources:

Cost Determination and Amortization

oPatentsoCopyrightsoLeaseholdsoLeasehold ImprovementsoFranchises and LicensesoGoodwilloTrademarks and Trade NamesoOther Intangibles

Record at current cash equivalent cost, including purchase price, legal fees, and

filing fees.

P 4

Chapter 12:• Types of partnerships• Advantages/disadvantages of each• Recording partners’ initial

investments• 3 ways to divide income

Accounting for Partnerships

Partnership Form of OrganizationPartnership AgreementPartnership AgreementVoluntary

AssociationVoluntary

AssociationLimited

LifeLimited

Life

TaxationTaxation Unlimited Liability

Unlimited Liability

Mutual AgencyMutual Agency Co-Ownership of Property

Co-Ownership of Property

C 1

Organizations with Partnership Characteristics

Limited Partnerships

(LP)

• General partners assume management duties and unlimited liability for partnership debts.• Limited partners have no personal liability beyond invested amounts.

Limited Liability

Partnerships(LLP)

• Protects innocent partners from malpractice or negligence claims.

• Most states hold all partners personally liable for partnership debts.

Limited Liability

Corporations(LLC)

• Owners have same limited liability feature as owners of a corporation.

• A limited liability corporation typically has a limited life.

C 1

Choosing a Business Form (expanded from Chapter 1)

Many factors should be considered when choosing the proper business form.

Many factors should be considered when choosing the proper business form.

C 1

Organizing a PartnershipPartners can invest both assets and liabilities in the

partnership.

Assets and liabilities are recorded at an agreed-upon value, normally fair market value.

Asset contributions increase the partner’s capital account.

Withdrawals from the partnership decrease the partner’s capital account.

P 1

Organizing a PartnershipIn accounting for partnerships:1. Partners’ withdrawals are debited to their own separate

withdrawals account.2. Partners’ capital accounts are credited (or debited) for

their shares of net income (or net loss) when closing the accounts at the end of the period.

3. Each partner’s withdrawal account is closed to that partner’s capital account. Separate capital and withdrawals accounts are kept for each partner.

P 1

Organizing a PartnershipOn 1/11, Kayla Zayn and Hector Perez organize a partnership

called BOARDS. Zayn’s initial investment is $7,000 cash, $33,000 in boarding facilities, and a note payable for

$10,000 on the boarding facilities. Perez’s initial investment is $10,000 cash.

P 1

Dividing Income or Loss

3 frequently used allocation methods to divide income (loss):

1. Stated ratios.2. Capital balances.3. Services, capital, and stated ratios.

Partners are not employees of the partnership but are its owners. This means there are no salaries reported as expense on the income statement. Profits or losses of the partnership are divided on some agreed upon ratio.

P 2

Allocation on Stated Ratios In the partnership agreement, Zayn is to receive 2/3

and Perez 1/3 of partnership income or loss. If the partnership income is $60,000, we will allocate the income to partners as follows:

$60,000 × 2/3 = $40,000

P 2

Allocation on Capital Balances In their partnership agreement, Zayn and Perez agree to

allocate profits and losses on the basis of their beginning capital balances.

In their partnership agreement, Zayn and Perez agree to allocate profits and losses on the basis of their beginning capital balances.

Balance Ratio Income AllocationK. Zayn, Capital 30,000$ 75% 60,000$ 45,000$ H. Perez, Capital 10,000 25% 60,000 15,000 Totals 40,000$ 100% 60,000$

Dec 31 Income Summary 60,000 K. Zayn, Capital 45,000 H. Perez, Capital 15,000

To allocate income to partner's capital.

P 2

BREAK HERE

Allocation on Services, Capital, and Stated Ratios

Zayn and Perez have a partnership agreement with the following conditions:

1.Zayn receives a $36,000 annual salary allowance and Perez receives an allowance of $24,000.

2.Each partner is allowed an annual interest allowance of 10% on their beginning capital balance.

3.Any remaining balance of income or loss is allocated equally.

Net income is $70,000.

P 2

Zayn Perez Remainder70,000$

36,000$ 24,000$ 10,000 3,000 1,000 6,000 3,000 3,000 -

42,000 28,000 Income to each partner

Net income

Income Allocation

SalariesInterestEqual allocation


36,000$ 24,000$ 10,000 3,000 1,000 6,000 3,000 3,000 -


Net income

Income Allocation




36,000$ 24,000$ 10,000 3,000 1,000 6,000 3,000 3,000 -


Net income

Income Allocation



36,000$ 24,000$ 10,000 3,000 1,000 6,000 3,000 3,000 -

42,000 28,000

InterestEqual allocationIncome to each partner

Net income

Income Allocation

Salaries

$30,000 × 10% = $3,000$10,000 × 10% = $1,000 $30,000 × 10% = $3,000$10,000 × 10% = $1,000

P 2

$6,000 × ½ = $3,000$6,000 × ½ = $3,000


36,000$ 24,000$ (10,000) 3,000 1,000 (14,000) 3,000 3,000 (20,000)

42,000 28,000


Net income

Income Allocation

Salaries


36,000$ 24,000$ (10,000) 3,000 1,000 (14,000) 3,000 3,000 (20,000)

42,000 28,000


Net income

Income Allocation

Salaries



36,000$ 24,000$ (10,000) 3,000 1,000 (14,000) 3,000 3,000 (20,000)

42,000 28,000


Net income

Income Allocation

Salaries


36,000$ 24,000$ (10,000) 3,000 1,000 (14,000)

(7,000) (7,000) - 32,000 18,000 Income to each partner

Net income

Income Allocation


Now let’s assume that net income is only $50,000.

P 2

($14,000) × ½ = ($7,000)($14,000) × ½ = ($7,000)

Partnership Financial Statements

TotalBeginning capital balances -$ -$ -$ Investments by owners 30,000 10,000 40,000 Net income Salary allowances 36,000$ 24,000$ Interest allowances 3,000 1,000 Balance allocated 3,000 3,000 Total net income 42,000 28,000 70,000 Less partners' withdrawals (20,000) (12,000) (32,000) Ending capital balances 52,000$ 26,000$ 78,000$

Zayn Perez

BOARDSStatement of Partners' Equity

For the Year Ended December 31, 2013

During 2013, Zayn withdrew $20,000 cash from the partnership and Perez withdrew $12,000. Net income for the

year is $70,000.

P 2

What if Net Income is less than what is needed to cover

salaries and interest?

What if there is a Net Loss?

REMEMBER: We do this calculation so that we can close

INCOME SUMMARY to the correct

CAPITAL accounts.

1 Income Summary 98,800

Kramer, Capital 53,400

Knox, Capital 45,400

2 Kramer, Capital 4,400

Knox, Capital 12,400

Income Summary 16,800

Admission and Withdrawal of Partners When the makeup of the partnership changes, the

existing partnership is dissolved. A new partnership may be immediately formed. New partner acquires partnership interest by:

1. Purchasing it from the other partners, or2. Investing assets in the partnership.

P 3

Purchase of Partnership Interest• A new partner can purchase

partnership interest directly from the existing partners.

The cash goes to the partners, not to the partnership.

• To become a partner, the new partner must be accepted by the current partners.

P 3

Purchase of Partnership Interest On January 4th, Hector Perez sells one-half of his

partnership interest to Tyrell Rasheed for $18,000. Perez gives up a $13,000 recorded interest in the partnership.

Zayn Perez Rasheed TotalCapital balances before new partner 52,000$ 26,000$ -$ 78,000$ Allocation to new partner (13,000) 13,000 - Capital balances after new partner 52,000$ 13,000$ 13,000$ 78,000$

P 3

Investing Assets in a Partnership• The new partner can gain

partnership interest by contributing assets to the partnership.

• The new assets will increase the partnership’s net assets.

• After admission, both assets and equity will increase.

P 3

Investing Assets in a Partnership On January 4th, Tyrell Rasheed is admitted to the

partnership with a payment of $22,000 cash.

Zayn Perez Rasheed TotalCapital balances before new partner 52,000$ 26,000$ -$ 78,000$ Allocation to new partner 22,000 22,000 Capital balances after new partner 52,000$ 26,000$ 22,000$ 100,000$

P 3

Bonus to Old or New Partners

Bonus to Old Partners

When the current value of a partnership is greater than the recorded amounts of equity, the old partners usually require a

new partner to pay a bonus when joining.

Bonus to New Partners

The partnership may grant a bonus to a new partner if the business is in need of

cash or if the new partner has exceptional talents.

P 3

Bonus to Old Partners On January 4th, Zayn and Perez agree to accept Rasheed as a

partner upon his investment of $42,000 cash in the partnership. Rasheed is to receive a 25% ownership interest

in the new partnership. Any bonus is attributable to the existing partners and is shared equally.

78,000$ 42,000

120,000 25%

30,000$ Rasheed's equity balance

Equity of Zayn and Perez

Total partnership equityRasheed's ownership percent

Investment by Rasheed

P 3

Bonus to Old Partners

$42,000 - $30,000 = $12,000 × ½ = $6,000

P 3

On January 4th, Zayn and Perez agree to accept Rasheed as a partner upon his investment of $42,000 cash in the

partnership. Rasheed is to receive a 25% ownership interest in the new partnership. Any bonus is attributable to the

existing partners and is shared equally.

Bonus to New Partner

78,000$ 18,000 96,000

25%24,000$ Rasheed's equity balance

Equity of Zayn and Perez

Total partnership equityRasheed's ownership percent

Investment by Rasheed


partnership. Rasheed is to receive a 25% ownership interest in the new partnership. Any bonus is attributable to

Rasheed’s excellent business skills.

P 3

Bonus to New PartnerP 3

$18,000 - $24,000 = $(6,000) × ½ = $(3,000)


partnership. Rasheed is to receive a 25% ownership interest in the new partnership. Any bonus is attributable to

Rasheed’s excellent business skills.

Last LectureAgenda:• Return Quiz 9• Withdraw of Partner• Death of Partner• Liquidating a Partnership (closing

the business)

1. Review Session (remember the yellow problem)

2. Final Exam – Review Materials have been posted

3. Course Survey – return to my office if you did not do so last Thursday in class

4. Research Survey – more details today

Last CAT Opportunity

I believe… in taking chances to have huge adventures and make incredible memories as long as it doesn’t negatively impact my future.

I believe… in taking my life and my choices seriously, planning for fun, and leaving room for surprises.

I believe… medicine is the best medicine and that laughter is a gift.

I believe… life always happens today.

“I believe…” in ten lines or less.

I have been collecting these from students and friends since 1994. I have students return years later to read theirs or get a copy.

Can be funny or serious, but must be true. Write your name, the year, and your age on the back. I will give credit without looking at the front.

Withdrawal of a Partner

A partner can withdraw in two ways:1. The partner can sell his/ her partnership interest to another person.2. The partnership can distribute cash and/or other assets to the withdrawing partner.

A partner can withdraw in two ways:1. The partner can sell his/ her partnership interest to another person.2. The partnership can distribute cash and/or other assets to the withdrawing partner.

P 3

Withdrawal of a Partner At the date of the withdrawal of Perez, the partners have the

following capital balances: Perez - $38,000, Zayn - $84,000, and Rasheed - $38,000. The partners share income and loss equally.

Perez is to receive $38,000 cash upon withdrawal from the partnership.

No Bonus

P 3

Withdrawal of a Partner At the date of the withdrawal of Perez, the partners have the following

capital balances: Perez - $38,000, Zayn - $84,000, and Rasheed - $38,000. The partners share income and loss equally. Perez is to receive $34,000 cash

upon withdrawal from the partnership.

Bonus to Remaining Partners

P 3

Capital balance $ 38,000 Cash settlement 34,000 Bonus 4,000 Times 50% Bonus to each partner $ 2,000

Withdrawal of a Partner At the date of the withdrawal of Perez, the partners have the following

capital balances: Perez - $38,000, Zayn - $84,000, and Rasheed - $38,000. The partners share income and loss equally. Perez is to

receive $40,000 cash upon withdrawal from the partnership.

Bonus to Withdrawing Partner

P 3

Capital balance $ 38,000 Cash settlement 40,000 Deficiency 2,000 Times 50% To each partner $ 1,000

Death of a PartnerA partner’s death dissolves a partnership. A deceased partner’s estate is entitled to receive his or her equity. The partnership agreement should contain provisions for settlement. These provisions usually require:1. Closing the books to determine income or loss since the

end of the previous period, and2. Determining and recording current market values for

both assets and liabilities.Settlement of the deceased partner’s estate can involve selling the equity to remaining partners or to an outsider, or it can involve withdrawal of assets.

P 3

Liquidation of a Partnership

A partnership dissolution requires four steps:1. Noncash assets are sold for cash and a gain or loss on

liquidations is recorded.

2. Gain or loss on liquidation is allocated to partners using their income-and-loss ratio.

3. Liabilities are paid or settled.

4. Any remaining cash is distributed to partners based on their capital balances.

P 3

No Capital Deficiency No capital deficiency means that all partners have a zero or credit

balance in their capital accounts.

Zayn, Perez, and Rasheed agree to dissolve their partnership. The only outstanding liability is an account payable of $20,000. Prior to

dissolution the partnership has the following balance sheet:

Zayn, Perez, and Rasheed agree to dissolve their partnership. The only outstanding liability is an account payable of $20,000. Prior to

dissolution the partnership has the following balance sheet:

P 4

Cash 178,000$ Accounts payable 20,000$ Land 40,000 K. Zayn, Capital 70,000

H. Perez, Capital 66,000 T. Rasheed, Capital 62,000

218,000$ 218,000$

BOARDSBalance Sheet

At January 15, 2013

No Capital Deficiency BOARDS begins the dissolution process by selling the land for

$46,000 cash. The gain on the sale of the land is distributed equally among the partners. After the sale of the land the company pays

the account payable.

BOARDS begins the dissolution process by selling the land for $46,000 cash. The gain on the sale of the land is distributed equally

among the partners. After the sale of the land the company pays the account payable.

P 4

Jan. 15 Cash 46,000 Land 40,000 K. Zayn, Capital 2,000 H. Perez, Capital 2,000 T. Rasheed, Capital 2,000 To record sale of land.

Jan. 15 Accounts payable 20,000 Cash 20,000 To record payment of accounts payable.

No Capital Deficiency After the sale of land for a gain and the payment of the company’s

accounts payable, BOARDS has the following balance sheet:After the sale of land for a gain and the payment of the company’s

accounts payable, BOARDS has the following balance sheet:

P 4

Accounts payable -$ Cash 204,000$ K. Zayn, Capital 72,000$

H. Perez, Capital 68,000 T. Rasheed, Capital 64,000

204,000$ 204,000$

BOARDSBalance Sheet

At January 15, 2013

Capital Deficiency Capital deficiency means that at least one partner has a debit balance in his or her capital account at the point of final cash distribution. This can arise from liquidation losses, excessive withdrawals before liquidation, or recurring losses in prior periods. A partner with a capital deficiency must, if possible, cover the deficit by paying cash into the partnership.

Capital deficiency means that at least one partner has a debit balance in his or her capital account at the point of final cash distribution. This can arise from liquidation losses, excessive withdrawals before liquidation, or recurring losses in prior periods. A partner with a capital deficiency must, if possible, cover the deficit by paying cash into the partnership.

P 4

Capital DeficiencyZayn, Perez, and Rasheed agree to dissolve their partnership.

Prior to the final distribution of cash to the partners, Zayn has a capital balance of $19,000, Perez $8,000, and Rasheed $(3,000). Rasheed owes

the partnership $3,000 and is able to pay the amount.

Zayn, Perez, and Rasheed agree to dissolve their partnership. Prior to the final distribution of cash to the partners, Zayn has a capital balance of $19,000, Perez $8,000, and Rasheed $(3,000). Rasheed owes

the partnership $3,000 and is able to pay the amount.

P 4

Partner Cannot Pay Deficiency

Zayn Perez Rasheed TotalEnding capital balances 19,000$ 8,000$ (3,000)$ 24,000$ Allocation of $3,000 deficiency (1,500) (1,500) 3,000 - Capital balances for dissolution 17,500 6,500 - 24,000

Let’s use the information from our previous example of a capital deficiency and assume partners divide profit and losses equally.Let’s use the information from our previous example of a capital deficiency and assume partners divide profit and losses equally.

P 4

Global View

Partnership accounting according to U. S. GAAP is similar, but not identical, to that under IFRS.1. Both U. S. GAAP and IFRS include broad and similar guidance for

partnership accounting. Partnership organization is similar worldwide, however, different legal systems dictate different implications and motivations for how a partnership is effectively set up.

2. The account for partnership admission, withdrawal, and liquidation is likewise similar worldwide. However, different legal systems impact partnership agreements and their implication to the parties.

End of Chapter 12

Practice Problem and Solution

Your Journey…

Your Journey…

Each of you has come so far… You speak and understand the “Language of Business” much better than you did four months ago…It has been an honor to take this journey with you this semester.

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Documents

If your name appears on the list, please stay seated at then end of class. Alex AlexanderArisa BurapharatYohan Abraham Ross HouserDanielle FranceOlivia