Transcript
Learning Objectives
LO5 Calculate and record a gain on realization.
LO6 Calculate and record a loss on realization.
LO7 Journalize entries to liquidate a partnership.
LESSON
23-3 Dissolving a Partnership
Account Balances Before Realization
If a partnership goes out of business, its assets are distributed to the creditors and partners.
The process of paying a partnership’s liabilities and distributing remaining assets to the partners is called liquidation of a partnership.
Cash received from the sale of assets during liquidation of a partnership is called realization.
LO5
SLIDE 2
Lesson 23-3
Account Balances Before Realization
Cash
Balance 28,000.00
Balance 25,000.00
Machinery
Supplies
Balance 2,000.00
Balance 5,000.00
Accumulated Depreciation—Machinery
Accounts Payable
Balance 8,500.00
Balance 19,500.00
Jon Bakken, Capital
Gerald Bakkan, Capital
Balance 22,000.00
LO5
SLIDE 3
Lesson 23-3
Calculating Gain on Realization
Gain recorded
as a credit
Gain on Realization
Value of Asset
Received
?
Book Value of
Asset Sold
=
Gain on
Realization
Cost $25,000.00
Accum. Depr. 5,000.00
Cash $21,500.00
?
Book Value $20,000.00
=
$1,500.00
2
Subtract Book Value from
Cash Received
1
Determine Book Value of Asset Sold
3
Amount of Gain
LO5
SLIDE 4
Lesson 23-3
Recording Gain on Realization
Cash
Balance 28,000.00
Sold Machinery 21,500.00
Sold Machinery 1,500.00
Gain on Realization
July 1. Received cash from sale of machinery, $21,500.00: original cost, $25,000.00; total accumulated depreciation recorded to date, $5,000.00. Receipt No. 712.
Machinery
Balance 25,000.00
25,000.00
5,000.00
Accumulated Depreciation—Machinery
Balance 5,000.00
LO5
SLIDE 5
Lesson 23-3
Recording Gain on Realization
2
Credit Machinery
Debit Accumulated
Depreciation—Machinery
1
4
Debit Cash
3
Credit Gain on Realization
LO5
SLIDE 6
Lesson 23-3
Calculating Loss on Realization
Loss recorded
as a debit
Loss on Realization
Value of Asset
Received
?
Book Value of
Asset Sold
=
Loss on
Realization
Cash $1,700.00
?
Supplies $2,000.00
=
$(300.00)
3
Amount of Loss
2
Subtract Book Value from Cash Received
1
Determine Book Value of Asset Sold
LO6
SLIDE 7
Lesson 23-3
Recording a Loss on Realization
July 1. Received cash from sale of supplies, $1,700.00; balance of Supplies account, $2,000.00. Receipt No. 713.
Balance 28,000.00
Sold Machinery 21,500.00
Sold Supplies 1,700.00
Cash
Supplies
Balance 2,000.00
2,000.00
Sold Supplies 300.00
Loss on Realization
LO6
SLIDE 8
Lesson 23-3
Recording a Loss on Realization
Debit Loss on Realization
1
3
Debit Cash
3
Credit Supplies
LO6
SLIDE 9
Lesson 23-3
Liquidating Liabilities
July 1. Paid cash to all creditors for the amounts owed, $8,500.00. Check No. 825.
Accounts Payable
Balance 8,500.00
Balance 8,500.00
Balance 28,000.00
Sold Machinery 21,500.00
Sold Supplies 1,700.00
Cash
Paid Acct. Pay. 8,500.00
LO7
SLIDE 10
Lesson 23-3
Account Balances after Liquidation of
Noncash Assets and Payment of Liabilities
Paid Acct. Pay. 8,500.00
Balance 28,000.00
Sold Machinery 21,500.00
Sold Supplies 1,700.00
(New Balance 42,700.00)
Cash
Sold Supplies 300.00
Balance 300.00
Loss on Realization
Balance 22,000.00
Gerald Bakken, Capital
Jon Bakken, Capital
Balance 19,500.00
Sold Machinery 1,500.00
Balance 1,500.00
Gain on Realization
SLIDE 11
Lesson 23-3
LO7
Distributing Loss or Gain on Realization
Balance of Gain on
Realization
×
Fixed
Percentage
=
Share of the Balance of Gain on Realization
G. Bakken $1,500.00
×
60%
=
$ 900.00
J. Bakken $1,500.00
×
40%
=
600.00
Total
$ 1,500.00
Balance of Loss on
Realization
×
Fixed
Percentage
=
Share of the Balance of Loss on Realization
G. Bakken $300.00
×
60%
=
$ 180.00
J. Bakken $300.00
×
40%
=
120.00
Total
$ 300.00
LO7
SLIDE 12
Lesson 23-3
Distributing Loss or Gain on Realization
July 6. Recorded distribution of gain on realization: to Gerald Bakken, $720.00; to Jon Bakken, $480.00. Recorded distribution of loss on realization: to Gerald Bakken, $180.00; to Jon Bakken, $120.00. Memorandum Nos. 531 and 532.
Sold Supplies 300.00
Loss on Realization
Distribution 300.00
Sold Machinery 1,500.00
Gain on Realization
Distribution 1,500.00
Jon Bakken, Capital
Balance 19,500.00
Share of gain 600.00
(New Balance 19,980.00)
Share of loss 120.00
Balance 22,000.00
Share of gain 900.00
(New Balance 22,720.00)
Gerald Bakken, Capital
Share of loss 180.00
LO7
SLIDE 13
Lesson 23-3
Distributing Loss or Gain on Realization
Close Gain on Realization account.
Close Loss on Realization account.
LO7
SLIDE 14
Lesson 23-3
Distributing Remaining Cash to Partners
July 6. Recorded final distribution of remaining cash to partners: to Gerald Bakken, $22,720.00; to Jon Bakken,
$19,980.00. Check Nos. 826 and 827.
Balance 42,700.00
(New Balance) 0.00)
22,720.00
19,980.00
Cash
Balance 19,980.00
(New Balance) 0.00)
Jon Bakken, Capital
19,980.00
22,720.00
Balance 22,720.00
(New Balance) 0.00)
Gerald Bakken, Capital
Debit each partner’s capital account for the amount of the account balance
Credit Cash for the amounts distributed
LO7
SLIDE 15
Lesson 23-3
Lesson 23-3 Audit Your Understanding
1. How is a gain on realization recorded?
ANSWER
As a credit to the Gain on Realization account
SLIDE 16
Lesson 23-3
Lesson 23-3 Audit Your Understanding
2. How is a loss on realization recorded?
ANSWER
As a debit to the Loss on Realization account
SLIDE 17
Lesson 23-3
Lesson 23-3 Audit Your Understanding
3. Which accounts are debited when distributing remaining cash to partners during liquidation?
ANSWER
Each partner’s capital account
SLIDE 18
Lesson 23-3
