Preambulo del capitulo 13
Contabilidad para
Sociedades
Organizacion de
Una Sociedad

Contabilidad Basica
de una Sociedad
Caracteristicas



Ventajas/
Desventajas

Acuerdo de
Sociedad


Organizaciones
con caracteristicas
de una sociedad
Formacion de una
sociedad
Division del net
Income/ Perdida
Estados
Financieros
Admision o Retiro
de un socio

Reversing entries
(optional)

Correcting entries
(avoidable)
Liquidacion de una
Sociedad


No capital
deficiency
Capital deficiency
PARTNERSHIP FORM OF
ORGANIZATION
 El Uniform Partnership Act dicta las reglas
basicas para la formacion y operacion de
una sociedad en el 90% de los estados.
 El Acta define una sociedad como una
asociacion de 2 o mas personas que actuan
como co-duenos de un negocio
para generar ingresos..
Caracteristicas de una
Sociedad
Las caracteristicas principales de una
sociedad como una organizacion de negocio
son:
1 Asociacion de individuos
2 Agencia Mutua
3 Vida Limitada
4 Unlimited liability
5 Propiedades compartidas
ILLUSTRATION 13-1
PARTNERSHIP CHARACTERISTICS
Asociacion de Individuos
Partnership Form of
Business
Organization
Agencia Mutua
Responsabilidad Ilimitada
Co-pertenencia
de la propiedad
Vida Limitada
Asociacion de Individuos
 La asociacion de individuos en una sociedad puede estar
basada simplemente con un apreton de manos; aunque,
es preferiblemente el presentar el acuerdo por escrito.
 Una sociedad es una entidad legal para ciertos
propositos. (propiedades pueden estar a nombre de la
sociedad).
 Una sociedad es una entidad contable para propositos
de reportes financieros.
 El Net income de una sociedad no
tributa como una entidad separada;
cada socio tributa a su taza
contributiva su porcion del ingreso
MUTUAL AGENCY
 Mutual agency significa que cada socio actua a
beneficio de la sociedad cuando entran en el
negocio de la sociedad.
 El acto de cualquier socio esta ligado con todos los
socios. Esto es cierto aunque
los socios actuen mas alla del alcance
de su autoridad, siempre y cuando
el acto aparesca ser apropiado para
la sociedad.
Vida Limitada
 Sociedades tienen una vida limitada.
 Disolucion de una sociedad ocurre siempre que un
socio se retire o un nuevo socio se admita.
 Sociedades finalizan involuntariamente por la
muerte o incapacidad de uno de los socios.
 Sociedades pueden terminar voluntariamente
atraves de la aceptacion de un nuevo soio o del
retiro de un socio.
Responsabilidad
ilimitada
 Responsabilidad Ilimitada significa que cada
socio es personalmente e individualmente
responsible por todas las deudas de la sociedad.
 Reclamos de los acreedores comprometen
primero los activos de la sociedad. Si estos son
insuficientes para pagar estos reclamos,
entonces los reclamos comprometen
los activos personales de los socios y
los recursos personales de cualquier socio, sin
importar la aportacion en el capital del socio en la
sociedad.
Co-pertenencia de la
propiedad
 Activos de la sociedad son de co-pertenencia por
los socios; una vez un activo se invierte en la
sociedad son de propiedad conjunta por todos los
socios.
 Ingreso de las sociedades o las perdidas de las
sociedades son tambien compartidas; si el
contrato de sociedad no especifica lo contrario , el
ingreso o perdida neta se reparte de igual manera
por los socios.
ILLUSTRATION 13-2
Ventajas & Desventajas
de una Sociedad
Ventajas
Combinacion de recursos y destrezas de 2 o mas individuos
De facil formacion
Libertad de Regulaciones y restricciones del Gobierno
Facilita la toma de decisiones
Desventajas
Mutual agency
Vida Limitada
Responsabilidad
Ilimitada
El Acuerdo de
Sociedad
 El contrato escrito se refiere al acuerdo de sociedad (articulos de cosociedad) contienen informacion basica tales como el nombre,
localizacion principal del negocio, y la fecha de comienzo.
 Las siguientes relaciones entre socios deben ser especificadas:
1 Nombre y contribucion de capital de los socios.
2 Derechos y deberes de los socios.
3 Bases para la reparticion del ingreso o perdida.
4 Provisiones para los retiros de activos
5 Procedimientos para somter disputas para arbitraje.
6 Procedimientos para el retiro o adicion de un socio.
7 Derechos y responsabilidades de los socios sobrevivientes en el
evento de la muerte de un socio.
STUDY OBJECTIVE 2
................................
2 Explain the accounting entries for the formation
of a partnership.
Formacion de una
sociedad
 Cada inversion inicial de un socio debe ser registrada
al justo valor en el mercado de los activos a la fecha
de hacer la transferencia a la sociedad.
 Los valores asignados deben estar aprobados por
todos los socios.
 Luego que una sociedad ha sido formada, la
contabilidad es similar a la contabilidad de cualquier
tipo de negocio.
En la formacion de una sociedad esta
computadora debe registrarse a l justo
valor en el mercado de $2,500 en vez de
su valor en los libros, el cual luego de la
depreciacion debe ser menor.
ILLUSTRATION 13-3
BOOK AND MARKET VALUE OF
ASSETS INVESTED
A. Rolfe and T. Shea combine their proprietorships
to start a partnership. They have the following
assets prior to the formation of the partnership:
B o o k V alu e
A. R o lfe
C ash
O ffice eq u ip m en t
Accu m u lated d ep reciatio n
Acco u n ts receivab le
Allo w an ce fo r d o u b tfu l acco u n ts
$
T . S h ea
8,000 $
5,000
( 2,000)
9,000
M arket V alu e
A. R o lfe
$
8,000
4,000
4,000
( 700)
$ 11,000
$ 12,300
T . S h ea
$
9,000
4,000
( 1,000)
$ 12,000
$ 12,000
RECORDING INVESTMENTS
IN A PARTNERSHIP
Entries to record the investments are:
A c c o u n t T itle s a n d E x p la n a tio n
D e b it
C re d it
In v e s tm e n t o f A . R o lfe
C ash
O ffic e E q u ip m e n t
A . R o lfe , C a p ita l
(T o re c o rd in v e s tm e n t o f R o lfe )
8,000
4,000
12,000
In v e s tm e n t o f T . S h e a
C ash
A c c o u n ts R e c e iv a b le
A llo w a n c e fo r D o u b tfu l A c c o u n ts
T . S h e a , C a p ita l
(T o re c o rd in v e s tm e n t o f S h e a )
9,000
4,000
1,000
12,000
Division del Ingreso Neto o
Perdida Neta
 El ingreso neto o la perdida neta es
compartido de forma equitativa a menos que
el acuerdo de sociedad dicte lo contrario.
 La misma base para la division aplica para la
perdida como para el ingreso. Y se le conoce
como el income ratio (proporcion de ingreso) o
la proporcion de ingresos y perdida.
 La parte del Ingreso correspondiente a un socio
se reconoce en las cuentas a traves de unas
entradas de cierre.
Entradas de Cierre
Las siguientes 4 entradas de cierre (closing entries) son
requeridas por una sociedad:
1)Debito a cada cuenta de ingreso por sus balances y
credito a Income Summary por el total de ingresos.
2)Debito a Income Summary por el total expenses and
credito a cada cuenta de gastos por su balance.
3) Debit (credit) Income Summary for its balance and
credit (debit) each partner’s capital account for his
or her share of net income (net loss).
4) Debit each partner’s capital account for the
balance in that partner's drawing account and
each partner’s drawing account for the same amount.
CLOSING ENTRIES
Las primeras 2 entradas son las mismas que
una propiedad, mientras que las ultimas 2
son diferentes ya que :
1) Hay 2 o mas cuentas de “owners
capital” y cuentas de retiro
2) Es necesario el dividir el net
income o perdida con los
socios.
ILLUSTRATION 13-4
CLOSING NET INCOME AND
DRAWING ACCOUNTS
La compania AB tiene un net income de $32,000 para 2002. Los socios,
L. Arbor y D. Barnett, comparten el net income y net loss de forma igual,
y los retiros para el año es Arbor $8,000 y Barnett $6,000. Las ultimas 2
transacciones son:
D a te
A c c o u n t T itle s a n d E x p la n a tio n
D ec. 31
In c o m e S u m m a ry
L . A rb o r, C a p ita l ($ 3 2 ,0 0 0 X 5 0 % )
D . B a rn e tt, C a p ita l ($ 3 2 ,0 0 0 X 5 0 % )
(T o tra n s fe r n e t in c o m e to o w n e rs ’
c a p ita l a c c o u n ts )
31
L . A rb o r, C a p ita l
D . B a rn e tt, C a p ita l
L . A rb o r, D ra w in g
D . B a rn e tt, D ra w in g
(T o c lo s e d ra w in g a c c o u n ts to
c a p ita l a c c o u n ts )
D e b it
C re d it
32,000
16,000
16,000
8,000
6,000
8,000
6,000
ILLUSTRATION 13-5
PARTNERS’ CAPITAL AND DRAWING
ACCOUNTS AFTER CLOSING
Assuming the beginning capital balance is $47,000
for Arbor and
L . A rb o r, C a p ita l
1 2 /3 1
C lo sin g
8 ,0 0 0 1 /1
B a la n ce
4 7 ,0 0 0
$36,000 for
1 2 /3 1
C lo sin g
1 6 ,0 0 0
1 2 /3 1
B a la n ce
5 5 ,0 0 0
Barnett, the
capital and
L . A rb o r, D ra w in g
8 ,0 0 0
drawing accounts 1 2 /3 1 B a la n ce 8 ,0 0 0 1 2 /3 1 C lo sin g
D . B a rn e tt, C a p ita l
will show the
1 2 /3 1
C lo sin g
6 ,0 0 0 1 /1
B a la n ce
3 6 ,0 0 0
1 2 /3 1
C lo sin g
1 6 ,0 0 0
following after
1 2 /3 1
B a la n ce
4 6 ,0 0 0
posting the closing
D . B a rn e tt, D ra w in g
entries:
1 2 /3 1
B a la n ce
6 ,0 0 0 1 2 /3 1
C lo sin g
6 ,0 0 0
STUDY OBJECTIVE 3
................................
3 Identify the bases for dividing net income or net loss.
Proporcion de
Ingresos
El acuerdo de sociedad debe especificar las bases para la
reparticion del ingreso neto o perdida. Los siguientes son
proporciones tipicas de ingreso:
1 Una proporcion fija, expresada como una proporcion,
(6:4), un porcentaje (60% and 40%), o una fraccion (3/5
and 2/5).
2 A proporcion basada en el balance de capital a principio
de año o un promedio de los balances de capital durante
el año.
3 Salarios a los socios y el remanente en una proporcion
fija.
4 Intereses en los balances de capital de los socios y el
remanente en una proporcion fija.
5 Salarios a los socios, Intereses en el capital de los sociso y
el remanente en una proporcion fija.
TYPICAL INCOME-SHARING RATIOS
FIXED RATIO
If A. Hughes and D. Lane are partners, each
contributing the same amount of capital, but
Hughes expects to work full-time and Lane
only part-time, a 2/3, 1/3 fixed ratio may be
equitable. The entry to close $21,000 net
income to partner’s capital accounts is:
D a te
A c c o u n t T itle s a n d E x p la n a tio n
D e b it
D ec. 31
In c o m e S u m m a ry
A . H u g h e s , C a p ita l ($ 2 1 ,0 0 0 X 2 /3 )
D . L a n e , C a p ita l ($ 2 1 ,0 0 0 X 1 /3 )
(T o tra n s fe r n e t in c o m e to o w n e rs ’
c a p ita l a c c o u n ts )
21,000
C re d it
14,000
7,000
Proporcion tipica de participacion
de Ingresos-Balances de Capital
 Esta proporcion de participacion de
ingresos puede estar basada en los
balances de capital al principio del
año o en un balance de capital promedio
durante el año.
 Participacion de Ingresos basadas en los
Balances de Capital puede ser igual
cuando un gerente es contratado para
correr el negocio , y los socios no planean
en participar activamente en el negocio.
Proporcion tipica de participacion
de Ingresos– SALARIOS
 Participacion de Ingreso basados en salarios puede ser:
1) Salary allowances to partners and the remainder
on a fixed ratio or
2) Salary allowances to partners, interest on
partners’ capitals, and the remainder on a fixed ratio.
 Salarios a los socios e intereses en los balances de capital
no son llevados a gastos en las sociedades. Asi que estos
item no entran en el computo de los ingresos o perdidas de
las sociedades.
ILLUSTRATION 13-6
INCOME STATEMENT WITH
DIVISION OF NET INCOME
Sara King and Ray
Lee are copartners in
the Kingslee
Company. The
partnership
agreement provides
for 1) salary
allowances of $8,400
for Sara and $6,000
for Ray, 2) interest
allowances of 10% on
capital balances at the
beginning of the year,
and 3) the remainder
equally. The division
of the 2002 net income
of $22,000 is as
follows:
K IN G S L E E C O M P AN Y
In co m e S tatem en t
F o r th e Y ear E n d ed D ecem b er 31, 2002
Sales
N et incom e
$ 200,000
$ 22,000
D ivision of N et Incom e
Salary allow ance
Interest allow ance on partner’s behalf
Sara K ing ($28,000 X 10% )
R ay L ee ($24,000 X 10% )
T otal interest allow ances
T otal salaries and interest
R em aining incom e – $2,400 ($22,000 – $19,600)
Sara K ing ($2,400 X 50% )
R ay L ee ($2,400 X 50% )
T otal rem ainder
T otal division
Sara
K ing
R ay
L ee
T otal
$ 8,400
$ 6,000
$ 14,400
2,800
2,400
5,200
11,200
8,400
19,600
1,200
1,200
2,400
$ 12,400
$ 9,600
$ 22,000
SALARIES, INTEREST, AND
REMAINDER ON A FIXED RATIO
Capital balances on January 1, 2002 were
Sara King – $28,000 and Ray Lee –
$24,000. The entry to record the division
of net income is:
D a te
D ec. 31
A c c o u n t T itle s a n d E x p la n a tio n
In c o m e S u m m a ry
S a ra K in g , C a p ita l
R a y L e e , C a p ita l
(T o c lo s e n e t in c o m e to p a rtn e rs ’
c a p ita ls )
D e b it
C re d it
22,000
12,400
9,600
ILLUSTRATION 13-7
DIVISION OF NET INCOME
INCOME DEFICIENCY
Net income in Kingslee Company is assumed to be only $18,000.
In this case, the salary and interest allowances will create a
$1,600 deficiency ($19,600 – $18,000). Since the calculations of
the allowances are the same as in Illustration 13-6, the division
of net income will begin with total salaries and interest, as
shown below.
S a ra
K in g
T o ta l sa la ries a n d in terest
R em a in in g d eficien cy – $ 1 ,6 0 0 ($ 1 8 ,0 0 0 – $ 1 9 ,6 0 0 )
S a ra K in g ($ 1 ,6 0 0 X 5 0 % )
R a y L ee ($ 1 ,6 0 0 X 5 0 % )
T o ta l rem a in d er
$
T o ta l d iv isio n
$
1 1 ,2 0 0
(
R ay
L ee
$
8 ,4 0 0
T o ta l
$
1 9 ,6 0 0
800)
(
800)
( 1 ,6 0 0 )
1 0 ,4 0 0
$
7 ,6 0 0
$
1 8 ,0 0 0
STUDY OBJECTIVE 4
................................
4 Describe the form and content
of partnership financial statements.
ILLUSTRATION 13-8
PARTNER’S CAPITAL STATEMENT
K IN G S L E E C O M P A N Y
P a rtn e rs ’ C a p ita l S ta te m e n t
F o r th e Y e a r E n d e d D e c e m b e r 3 1 , 2 0 0 2
The owners’
equity statement
for a partnership
S a ra
R ay
is called the
K in g
L ee
T o ta l
partners’ capital
C a p ita l, J a n u a ry 1
$ 2 8 ,0 0 0 $ 2 4 ,0 0 0
$ 5 2 ,0 0 0
statement. Its
A d d : A d d itio n a l in v estm en t
2 ,0 0 0
2 ,0 0 0
function is to
N et in co m e
1 2 ,4 0 0
9 ,6 0 0
2 2 ,0 0 0
explain the
4 2 ,4 0 0
3 3 ,6 0 0
7 6 ,0 0 0
L ess: D ra w in g s
7 ,0 0 0
5 ,0 0 0
1 2 ,0 0 0
changes 1) in each
C a p ita l, D ecem b er 3 1
$ 3 5 ,4 0 0 $ 2 8 ,6 0 0 $ 6 4 ,0 0 0
partner’s capital
account and 2) in
total partnership capital during the year. The enclosed partners’
capital statement for the Kingslee Company is based on the division of
$22,000 of net income in Illustration 13-6.
ILLUSTRATION 13-9
OWNER’S EQUITY SECTION OF A
PARTNERSHIP BALANCE SHEET
K IN G S L E E C O M P A N Y
The partners’
B a la n c e S h e e t - p a rtia l
capital statement
Decem ber 31, 2002
is prepared from
T otal liab ilities (assu m ed am ou n t)
$ 115,000
the income
O w n ers’ eq u ity
statement and the
S ara K in g, C ap ital
$ 35,400
R ay L ee, C ap ital
28,600
partners’ capital
T otal ow n ers’ eq u ity
64,000
and drawing
T otal liab ilities an d ow n ers’ eq u ity
$ 179,000
accounts. The
balance sheet for
a partnership is the same as for a proprietorship except in the owners’
equity section. The capital balances of the partners are shown in the
balance sheet. The owners’ equity section of the balance sheet for
Kingslee Company is enclosed.
STUDY OBJECTIVE 5
................................
5 Explain the effects of the entries when a new
partner is admitted.
ADMISSION OF A
PARTNER
 The admission of a new partner results in the
legal dissolution of the existing partnership
and the beginning of a new one.
 To recognize economic effects, it is necessary
only to open a capital account for each new
partner.
 A new partner may be admitted either by:
1) Purchasing the interest of an existing
partner or
2) Investing assets in a partnership.
ILLUSTRATION 13-10
PROCEDURES IN ADDING PARTNERS
Admission of Partner through:
Partnership
Assets
I. Purchase of a Partner’s Interest
The admission of a partner by purchase of an interest in the firm is a
personal transaction between one or more existing partners and the
new partner. The price paid is negotiated and determined by the
individuals involved; it may be equal to or different from the capital
equity acquired. Any money or other consideration exchanged is the
personal property of the participants and not the property of the
partnership.
ILLUSTRATION 13-10
PROCEDURES IN ADDING PARTNERS
When a partner is admitted by investment, both the total net
assets and the total partnership capital change. When the new
partner’s investment differs from the capital equity acquired,
the difference is considered a bonus either to: 1) The existing
(old) partners or 2) The new partner.
Hello
Partnership
Assets
II. Investment of Assets in Partnership
ILLUSTRATION 13-11
LEDGER BALANCES AFTER PURCHASE OF
A PARTNER’S INTEREST
L. Carson agrees to pay $10,000 each to to C. Ames and D. Barker for
1/3 of their interest in the Ames-Barker partnership. At the time of the
admission of Carson, each partner has a $30,000 capital balance. Both
partners
A c c o u n t T itle s a n d E x p la n a tio n
D e b it
C re d it
therefore
C . A m e s , C a p ita l
10,000
give up
D . B a rk e r, C a p ita l
10,000
L
.
C
a
rs
o
n
,
C
a
p
ita
l
$10,000 of
20,000
(T o re c o rd a d m is s io n o f C a rs o n
their capital
b y p u rc h a s e )
equity. The
entry to
N e t A s s e ts
C . A m e s , C a p ita l
6 0 ,0 0 0
1 0 ,0 0 0
3 0 ,0 0 0
record the
B a la n c e
2 0 ,0 0 0
admission of
D . B a rk e r, C a p ita l
L . C a rs o n , C a p ita l
Carson is
1 0 ,0 0 0
3 0 ,0 0 0
2 0 ,0 0 0
B a la n ce
2 0 ,0 0 0
shown.
ILLUSTRATION 13-12
LEDGER BALANCES AFTER
INVESTMENT OF ASSETS
Assume that instead of purchasing an interest, Carson invests $30,000
in cash in the Ames-Barker partnership for a 1/3 capital interest. In
such a case, the entry would be as shown. The effects of this
transaction on the partnership accounts are shown in the t-accounts.
Ac c o u n t T itle s a n d E x p la n a tio n
C ash
L . C a rs o n , C a p ita l
(T o re c o rd a d m is s io n o f C a rs o n
b y in v e s tm e n t)
N e t As s e ts
D e b it
30,000
30,000
C . Am e s , C a p ita l
6 0 ,0 0 0
3 0 ,0 0 0
B a la n ce
C re d it
3 0 ,0 0 0
9 0 ,0 0 0
D . B a rk e r, C a p ita l
L . C a rs o n , C a p ita l
3 0 ,0 0 0
3 0 ,0 0 0
ILLUSTRATION 13-13
COMPARISON OF PURCHASE OF AN INTEREST
AND ADMISSION BY INVESTMENT
The different effects of the purchase of an interest and admission by
investment are shown in the comparison of net assets and capital balances.
When an interest is purchased, the total net assets and total capital of the
partnership do not change. On the other hand, when a partner is
admitted by investment,
both the total net assets
P u rc h a s e
Ad m is s io n
and the total capital change.
of an
by
For an admission by
In te re s t
In v e s tm e n t
investment, when the new
partner’s investment and
N et A ssets
$ 6 0 ,0 0 0
$ 9 0 ,0 0 0
the capital equity acquired
C a p ita l
are different, the difference
C . A m es
$ 2 0 ,0 0 0
$ 3 0 ,0 0 0
is considered a bonus to
D . B a rker
2 0 ,0 0 0
3 0 ,0 0 0
1) the old partners or
L . C a rso n
2 0 ,0 0 0
3 0 ,0 0 0
2) the new partner.
T o ta l ca p ita l
$ 6 0 ,0 0 0
$ 9 0 ,0 0 0
BONUS TO
OLD PARTNERS
A bonus to old partners results when the new partner’s investment
in the firm is greater than the capital credit on the date of
admittance. The procedure for determining the new partner’s
capital credit and the bonus to the old partners is as follows:
1) Determine the total capital of the new partnership: add the
new partner’s investment to the total capital of the old
partnership.
2) Determine the new partner’s capital credit: multiply the total
capital of the new partnership by the new partner’s ownership
interest.
3) Determine the amount of bonus: subtract the new partner’s
capital credit from the new partner’s investment.
4) Allocate the bonus to the old partners on the basis of their
income ratios.
BONUS TO
OLD PARTNERS
The Bart-Cohen partnership owned by Sam Bart and Tom Cohen has total
capital of $120,000 when Lea Eden is admitted to the partnership. Lea
acquires a 25% ownership interest by making a cash investment of $80,000
in the partnership. The procedure for determining Eden’s capital credit
and the bonus to the old partners is as follows:
1. Determine the total capital of the new partnership by adding the new
partner’s investment to the total capital of the old partnership. In this case, the
total capital of the new firm is $200,000, calculated as follows:
T otal cap ital of existin g p artn ersh ip
In vestm en t b y n ew p artn er, E d en
$ 120,000
80,000
T otal cap ital of n ew p artn ersh ip
$ 200,000
2. Determine the new partner’s capital credit by multiplying the
total capital of the new partnership by the new partner’s ownership
interest. Eden’s capital credit is $50,000 ($200,000 X 25%).
BONUS TO
OLD PARTNERS
3. Determine the amount of bonus by subtracting the new
partner’s capital credit from the new partner’s investment. The
bonus in this case is $30,000 ($80,000 – $50,000).
4. Allocate the bonus to the old partners on the basis of their income
ratios. Assuming the ratios are Bart, 60% and Cohen, 40%, the allocation
is: Bart, $18,000 ($30,000 X 60%) and Cohen, $12,000 ($30,000 X 40%).
The entry to record the admission is:
Ac c o u n t T itle s a n d E x p la n a tio n
C ash
S a m B a rt, C a p ita l
T o m C o h e n , C a p ita l
L e a E d e n , C a p ita l
(T o re c o rd a d m is s io n o f E d e n
a n d b o n u s to o ld p a rtn e rs )
D e b it
C re d it
80,000
18,000
12,000
50,000
BONUS TO
NEW PARTNER
 A bonus to a new partner results when the new
partner’s investment is lees than his or her capital
credit in the firm.
 The capital balances of the old partners are
decreased based on their income ratios before the
admission of the new partner.
BONUS
ILLUSTRATION 13-14
COMPUTATION OF CAPITAL CREDIT AND
BONUS TO NEW PARTNER
Lea Eden invests $20,000 in cash for a 25% ownership interest in the Bart-Cohen
partnership. The calculations for Eden’s capital credit and the bonus are as
follows:
1. T otal capital of B art-C ohen partnership
Investm ent by new partner, E den
T otal capital of new partnership
2. E den’s capital credit (25% X $140,000)
$ 120,000
20,000
3. B onus to Eden ($35,000 –
$20,000)
$ 140,000
4. Allocation of bonus:
B art ($15,000 X 60% )
Cohen ($15,000 X 40% )
$ 35,000
$ 15,000
$ 9,000
6,000
$ 15,000
The entry to record the admission of Eden is as follows:
Ac c o u n t T itle s a n d E x p la n a tio n
C ash
S a m B a rt, C a p ita l
T o m C o h e n , C a p ita l
L e a E d e n , C a p ita l
(T o re c o rd E d e n ’s a d m is s io n
and bonus)
D e b it
C re d it
20,000
9,000
6,000
35,000
STUDY OBJECTIVE 6
................................
6 Describe the effects of the entries when a
partner withdraws from the firm.
WITHDRAWAL
OF A PARTNER
 A partner may withdraw from a partnership
voluntarily by selling his or her equity in the firm
or involuntarily by reaching mandatory
retirement age or by dying.
 The withdrawal of a partner
may be accomplished by
1 payment from remaining
partners’ personal assets or
2 payment from partnership
assets.
ILLUSTRATION 13-15
PROCEDURES IN
PARTNERSHIP WITHDRAWAL
Withdrawal of Partner through:
Partnership
Assets
Bye
I. Payment from Partners’ Personal Assets
Bye
Partnership
Assets
II. Payment from Partnership Assets
PAYMENT FROM
PARTNERS’
PERSONAL ASSETS
 The withdrawal of a partner when payment is
made from partners’ personal assets is the direct
opposite of admitting a new partner who
purchases a partner’s interest.
 Withdrawal by payment from partners’ personal
assets is a personal transaction between the
partners.
Partnership
Assets
Bye
ILLUSTRATION 13-16
LEDGER BALANCES AFTER
PAYMENT
FROM PARTNERS’ PERSONAL ASSETS
Anne Morz, Mary Nead, and Jill Odom have capital balances of $25,000,
$15,000, and $10,000, respectively, when Morz and Nead agree to buy out
Odom’s interest. Each of them agrees to pay Odom $8,000 in exchange for
one-half of Odom’s total interest of $10,000. The entry to record the
withdrawal is:
Ac c o u n t T itle s a n d E x p la n a tio n
D e b it
J ill O d o m , C a p ita l
An n e M o rz , C a p ita l
M a ry N e a d , C a p ita l
(T o re c o rd p u rc h a s e o f O d o m ’s
In te re s t)
10,000
C re d it
5,000
5,000
The effect of this entry on the partnership accounts is shown below:
N e t As s e ts
An n e M o rz, C a p ita l
50,000
B al.
25,000
5,000
30,000
M a ry N e a d , C a p ita l
B al.
15,000
5,000
20,000
J ill O d o m , C a p ita l
10,000
10,000
B al.
–0–
PAYMENT FROM
PARTNERSHIP ASSETS
Using partnership assets to pay for a withdrawing
partner’s interest decreases both total assets and
total partnership capital. In accounting for a
withdrawal by payment from partnership assets:
1) asset revaluations should not be recorded and
2) any difference between the amount paid and the
withdrawing partner’s capital balance should be
considered a bonus to the retiring partner or a
bonus to the remaining partners.
Bye
Partnership
Assets
BONUS TO
RETIRING PARTNER
A bonus may be paid to a retiring partner when:
1 the fair market value of partnership assets is
greater than their book value,
2 there is unrecorded goodwill resulting from the
partnership’s superior earnings record, or
3 the remaining partners are anxious to remove the
partner from the firm.
BONUS
BONUS TO
RETIRING PARTNER
The bonus is deducted from the remaining partners’ capital balances on the basis of
their income ratios at the time of the withdrawal. Terk retires from the RST
partnership and receives a cash payment of $25,000 from the firm. The procedure
for determining the bonus to the retiring partner and the allocation of the bonus to
the remaining partners is: 1) Determine the amount of the bonus by subtracting
the retiring partner’s capital balance from the cash paid by the partnership. The
bonus in this case is $5,000 ($25,000 – $20,000). 2) Allocate the bonus to the
remaining partners on the basis of their income ratios. The ratios of Roman
and Sand are 3:2, so the allocation of the $5,000 bonus is: Roman $3,000 ($5,000 X
3/5) and Sand $2,000 ($5,000 X 2/5). The appropriate entry is:
Ac c o u n t T itle s a n d E x p la n a tio n
B e tty T e rk , C a p ita l
F re d R o m a n , C a p ita l
D e e S a n d , C a p ita l
C ash
(T o re c o rd w ith d ra w a l o f a n d
b o n u s to T e rk )
D e b it
C re d it
20,000
3,000
2,000
25,000
BONUS TO
REMAINING PARTNERS
The retiring partner may pay a bonus to the
remaining partners when:
1 recorded assets are overvalued,
2 the partnership has a poor earnings record,
or
3 the partner is anxious to leave the
partnership.
BONUS
BONUS TO
REMAINING PARTNERS
The bonus is allocated (credited) to the capital balances of the
remaining partners on the basis of their income ratios. Assume that
Terk is paid only $16,000 for her $20,000 equity upon withdrawing
from the RST partnership. In such a case: 1) The bonus to
remaining partners is $4,000 ($20,000 – $16,000). 2) The allocation of
the $4,000 bonus is: Roman $2,400 ($4,000 X 3/5) and Sand $1,600
($4,000 X 2/5). The entry to record the withdrawal is:
A c c o u n t T itle s a n d E x p la n a tio n
B e tty T e rk , C a p ita l
F re d R o m a n , C a p ita l
D e e S a n d , C a p ita l
Cash
(T o re c o rd w ith d ra w a l o f T e rk
a n d b o n u s to re m a in in g
p a rtn e rs )
D e b it
C re d it
20,000
2,400
1,600
16,000
DEATH OF A PARTNER
 The death of a partner dissolves the partnership.
But provision generally is made for the surviving
partners to continue operations by purchasing the
deceased partner’s equity from their personal assets.
 When a partner dies it is necessary to determine
the partner’s equity at the date of death.
This is done by:
1) determining the net income or loss
for the year to date,
2) closing the books, and
3) preparing financial statements.
DEATH OF A PARTNER
 The surviving partners will agree to either
1) purchase the deceased partner’s equity
from their personal assets or
2) use partnership assets to settle with the
deceased partners estate.
 In both instances, the entries to
record the withdrawal of the
partner are similar to those
earlier.
LIQUIDATION OF A
PARTNERSHIP
 The liquidation of a partnership terminates the business. In
a liquidation, it is necessary to:
1) sell noncash assets for cash and recognize a gain or loss
on realization,
2) allocate gain/loss on realization to the partners based on
their income ratios,
3) pay partnership liabilities in cash, and
4) distribute remaining cash to partners on the basis of
their remaining capital balances.
 Each of the steps:
1) must be performed in sequence. Creditors must be paid
before partners receive any cash distributions and
2) must be recorded by an accounting entry.
STUDY OBJECTIVE 7
................................
7 Explain the effects of the entries to record the
liquidation of a partnership.
ILLUSTRATION 13-17
ACCOUNT BALANCES
PRIOR TO LIQUIDATION
The term no capital deficiency means that all partners
have credit balances in their capital accounts; if at least
one partner’s capital account has a debit balance, the
situation is termed a capital deficiency. The Ace
Company is liquidated when its ledger shows the
following assets, liabilities, and owners’ equity accounts:
L ia b ilitie s a n d O w n e rs ’ E q u ity
A s s e ts
C a sh
A cco u n ts receiv a b le
In v en to ry
E q u ip m en t
A ccu m u la ted d ep recia tio n – eq u ip m en t
$
5 ,0 0 0
1 5 ,0 0 0
1 8 ,0 0 0
3 5 ,0 0 0
( 8 ,0 0 0 )
$
6 5 ,0 0 0
N o tes p a y a b le
A cco u n ts p a y a b le
R . A rn et, C a p ita l
P . C a rey , C a p ita l
W . E a to n , C a p ita l
$
1 5 ,0 0 0
1 6 ,0 0 0
1 5 ,0 0 0
1 7 ,8 0 0
1 ,2 0 0
$
6 5 ,0 0 0
LIQUIDATION OF A PARTNERSHIP
NO CAPITAL DEFICIENCY
Ace Company partners decide to liquidate. The income ratios are 3:2:1
1. The noncash assets (accounts receivable, inventory, and
equipment) are sold for $75,000. Since the book value of these
assets is $60,000 ($15,000 + $18,000 + $35,000 – $8,000), a gain
of $15,000 is realized on the sale, The entry is:
A c c o u n t T itle s a n d E x p la n a tio n
D e b it
C re d it
(1 )
C ash
A c c u m u la te d D e p re c ia tio n – E q u ip m e n t
A c c o u n ts R e c e iv a b le
In v e n to ry
E q u ip m e n t
G a in o n R e a liz a tio n
(T o re c o rd re a liz a tio n o f n o n c a s h
a s s e ts )
75,000
8,000
15,000
18,000
35,000
15,000
LIQUIDATION OF A PARTNERSHIP
NO CAPITAL DEFICIENCY
2. The gain on realization of $15,000 is allocated to the
partners on their income ratios, which are 3:2:1.
The entry is:
Ac c o u n t T itle s a n d E x p la n a tio n
(2 )
G a in o n R e a liz a tio n
R . Arn e t, C a p ita l ($ 1 5 ,0 0 0 X 3 /6 )
P . C a re y, C a p ita l ($ 1 5 ,0 0 0 X 2 /6 )
W . E a to n , C a p ita l ($ 1 5 ,0 0 0 X 1 /6 )
(T o a llo c a te g a in to p a rtn e rs ’
c a p ita ls )
D e b it
C re d it
15,000
7,500
5,000
2,500
LIQUIDATION OF A PARTNERSHIP
NO CAPITAL DEFICIENCY
3. Partnership liabilities consist of Notes Payable $15,000
and Accounts Payable $16,000. Creditors are paid in
full by a cash payment of $31,000. The entry is:
Ac c o u n t T itle s a n d E x p la n a tio n
D e b it
C re d it
(3 )
N o te s P a ya b le
Ac c o u n ts P a ya b le
C ash
(T o re c o rd p a ym e n t o f p a rtn e rs h ip
lia b ilitie s )
15,000
16,000
31,000
ILLUSTRATION 13-18
LEDGER BALANCES
BEFORE DISTRIBUTION OF CASH
4. The remaining cash is distributed to the partners on the basis of
their capital balances. After the entries in the first 3 steps are
posted, all partnership accounts – including Gain on
Realization – will have zero balances except for 4 accounts:
Cash $49,000; R. Arnet, Capital $22,500; P. Carey, Capital
$22,800; and W. Eaton, Capital $3,700 – as shown below:
C ash
B a l.
(1 )
5 ,0 0 0 (3 )
7 5 ,0 0 0
B a l.
4 9 ,0 0 0
R . A rn e t, C a p ita l
3 1 ,0 0 0
P . C a re y, C a p ita l
W . E a to n , C a p ita l
B a l.
(2 )
1 5 ,0 0 0
7 ,5 0 0
B a l.
(2 )
1 7 ,8 0 0
5 ,0 0 0
B a l.
(2 )
1 ,2 0 0
2 ,5 0 0
B a l.
2 2 ,5 0 0
B a l.
2 2 ,8 0 0
B a l.
3 ,7 0 0
LIQUIDATION OF A PARTNERSHIP
CAPITAL DEFICIENCY
A capital deficiency may be caused by 1) recurring net losses, 2) excessive drawings
before liquidation, or 3) losses from realization suffered through liquidation. Ace
Company is on the brink of bankruptcy. The partners decide to liquidate by having a
“going-out-of-business” sale in which 1) merchandise is sold at substantial discounts
and 2) the equipment is sold at auction. Cash proceeds from 1) these sales and 2)
collections from customers total only $42,000. Therefore, the loss from liquidation is
$18,000
1. The entry for the realization of noncash assets is:
($60,000
Ac c o u n t T itle s a n d E x p la n a tio n
D e b it
C re d it
– 42,000).
(1 )
The steps in
C ash
the
42,000
liquidation Ac c u m u la te d D e p re c ia tio n – E q u ip m e n t
8,000
L
o
s
s
o
n
R
e
a
liz
a
tio
n
process are
18,000
Ac c o u n ts R e c e iv a b le
as follows:
15,000
In v e n to ry
E q u ip m e n t
(T o re c o rd re a liz a tio n o f n o n c a s h
a s s e ts )
18,000
35,000
LIQUIDATION OF A PARTNERSHIP
CAPITAL DEFICIENCY
2. The loss on realization is allocated to the partners on
the basis of their income ratios. The entry is:
Ac c o u n t T itle s a n d E x p la n a tio n
(2 )
R . Arn e t, C a p ita l ($ 1 8 ,0 0 0 X 3 /6 )
P . C a re y, C a p ita l ($ 1 8 ,0 0 0 X 2 /6 )
W . E a to n , C a p ita l ($ 1 8 ,0 0 0 X 1 /6 )
L o s s o n R e a liz a tio n
(T o a llo c a te lo s s o n re a liz a tio n to
p a rtn e rs )
D e b it
C re d it
9,000
6,000
3,000
18,000
LIQUIDATION OF A PARTNERSHIP
CAPITAL DEFICIENCY
3. Partnership liabilities are paid. The
entry is the same as in the previous
example.
Ac c o u n t T itle s a n d E x p la n a tio n
D e b it
C re d it
(3 )
N o te s P a ya b le
Ac c o u n ts P a ya b le
C ash
(T o re c o rd p a ym e n t o f p a rtn e rs h ip
lia b ilitie s )
15,000
16,000
35,000
ILLUSTRATION 13-20
LEDGER BALANCES
BEFORE DISTRIBUTION OF CASH
4. After posting the 3 entries, 2 accounts will have debit balances
– Cash $16,000 and W. Eaton, Capital $1,800 – and 2 accounts
will have credit balances –R. Arnet, Capital $6,000 and P.
Carey, Capital $11,800, as shown below. Eaton has a capital
deficiency of $1,800 and therefore owes the partnership $1,800.
Arnet and Carey have a legally enforceable claim against
Eaton’s personal assets. The distribution of cash is still made
on the basis of capital balances, but the amount will vary
depending on how the deficiency is settled.
C ash
B a l.
(1 )
5 ,0 0 0 (3 )
4 2 ,0 0 0
B a l.
1 6 ,0 0 0
P . C a re y, C a p ita l
R . A rn e t, C a p ita l
3 1 ,0 0 0
(2 )
9 ,0 0 0 B a l.
1 5 ,0 0 0
B a l.
6 ,0 0 0
(2 )
W . E a to n , C a p ita l
6 ,0 0 0 B a l.
1 7 ,8 0 0
(2 )
3 ,0 0 0 B a l.
B a l.
1 1 ,8 0 0
B a l.
1 ,8 0 0
1 ,2 0 0
ILLUSTRATION 13-21
LEDGER BALANCES
AFTER PAYING CAPITAL DEFICIENCY
If the partner with the capital deficiency pays the amount owed the
partnership, the deficiency is eliminated. If Eaton pays $1,800 to the
partnership, the entry is:
Ac c o u n t T itle s a n d E x p la n a tio n
D e b it
C re d it
(a )
C ash
W . E a to n , C a p ita l
(T o re c o rd p a ym e n t o f c a p ita l
d e fic ie n c y b y E a to n )
C ash
B a l.
(1 )
(a )
5 ,0 0 0 (3 )
4 2 ,0 0 0
1 ,8 0 0
B a l.
1 7 ,8 0 0
(2 )
1,800
P . C a re y, C a p ita l
R . Arn e t, C a p ita l
3 1 ,0 0 0
1,800
9 ,0 0 0 B a l.
1 5 ,0 0 0
B a l.
6 ,0 0 0
(2 )
6 ,0 0 0 B a l.
1 7 ,8 0 0
B a l.
1 1 ,8 0 0
W . E a to n , C a p ita l
(2 )
3 ,0 0 0 B a l.
(a )
1 ,2 0 0
1 ,8 0 0
B a l.
–0–
LIQUIDATION OF A PARTNERSHIP
CAPITAL DEFICIENCY
The cash balance of $17,800 is now equal to the credit balances in
the capital accounts (Arnet $6,000 + Carey $11,800), and cash is
distributed on the basis of these balances. The entry (shown
below) – once it is posted – will cause all accounts to have zero
balances.
Ac c o u n t T itle s a n d E x p la n a tio n
R . Arn e t, C a p ita l
P . C a re y, C a p ita l
C ash
(T o re c o rd d is trib u tio n o f c a s h to
th e p a rtn e rs )
D e b it
C re d it
6,000
11,800
17,800
ILLUSTRATION 13-22
LEDGER BALANCES
AFTER NONPAYMENT OF CAPITAL DEFICIENCY
If a partner with a capital deficiency is unable to pay the amount owed to the
partnership, the partners with credit balances must absorb the loss. The loss
is allocated on the basis of the income ratios that exist between the partners
with credit balances. The income ratios of Arnet and Carey are 3/5 and 2/5,
respectively. The following entry is made to remove Eaton’s capital
deficiency.
Ac c o u n t T itle s a n d E x p la n a tio n
(a )
R . Arn e t, C a p ita l ($ 1 ,8 0 0 X 3 /5 )
P . C a re y, C a p ita l ($ 1 ,8 0 0 X 2 /5 )
W . E a to n , C a p ita l
(T o re c o rd w rite -o ff o f c a p ita l
d e fic ie n c y)
D e b it
C re d it
1,080
720
1,800
After posting this entry, the cash and capital accounts will have
the following balances:
C ash
B a l.
(1 )
5 ,0 0 0 (3 )
4 2 ,0 0 0
B a l.
1 6 ,0 0 0
R . A rn e t, C a p ita l
3 1 ,0 0 0
(2 )
(a )
P . C a re y, C a p ita l
9 ,0 0 0 B a l.
1 ,0 8 0
1 5 ,0 0 0
B a l.
4 ,9 2 0
(2 )
(a )
6 ,0 0 0 B a l.
720
1 7 ,8 0 0
B a l.
1 1 ,0 8 0
W . E a to n , C a p ita l
(2 )
3 ,0 0 0 B a l.
(a )
1 ,2 0 0
1 ,8 0 0
B a l.
–0–
LIQUIDATION OF A PARTNERSHIP
CAPITAL DEFICIENCY
The cash balance of $16,000 now equals the credit
balances in the capital accounts (Arnet $4,920 + Carey
$11,080). The entry (shown below) – once it is posted –
will cause all accounts to have zero balances.
Ac c o u n t T itle s a n d E x p la n a tio n
R . Arn e t, C a p ita l
P . C a re y, C a p ita l
C ash
(T o re c o rd d is trib u tio n o f c a s h to
th e p a rtn e rs )
D e b it
C re d it
4,920
11,080
16,000
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CHAPTER 13
ACCOUNTING FOR PARTNERSHIPS
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1) Determine the total capital of the new partnership