 In this presentation we will have a liquidation of a partnership and we'll have a liquidation where one partner will end up with a negative capital account in the process of the liquidation and they won't be paying the partnership for that negative capital account like we would hope and therefore we're going to have to allocate that negative capital account to the other two partners bringing down their capital accounts in the liquidation process. So we're going to start here with doing this with a worksheet and then we'll do the same thing with a trial balance and journal entries. So first things we're going to have the ratio of a 3 to 1 is going to be our split between our three partners K, C and M. So to do this remember we just take the 3 plus the 2 plus the 1 is 6 and then we just take the 3 divided by the total of 6, 50% for K our first partner and then 2 divided by the total of 6 is 0.3333 for the second partner and then 1 divided by 6 or 0.1666 for the third partner. So we'll do that again here so we're in F70 equals 3 divided by 6 and say tab and then in G70 equals 2 divided by 6 tab and then M equals 1 divided by 6 tab and then if we highlight those three it should add up to 1 or 100%. So also note that this 0.33 goes on forever it's really one-third so we want to make sure that we use this cell within our formulas and not just use 0.33 which will be less exact. So then we have our accounts here this is basically like a trial balance within a table format. So we've got the assets of cash, then inventory, liabilities of the accounts payable and then the capital accounts. So if we take this we're going to say the assets of this and this to 712500 equal the liabilities and equity 712500, 712500, 712500. So now we're going to go through the process and go through our steps which first involves paying or selling the assets in this case inventory. We want to make sure to do that first so that we limit the problems with the partnership payments at the end. We limit the problems of having negative partnerships. We can't eliminate it because we will still have that problem here but we want to lessen that likelihood as much as possible. So we first sell the assets in this case we only sold it for 320,000 that's how much cash we're going to get. So we're going to say 320,000 the inventory was on the books for 530,000. So we're going to put that here negative 530,000 because we sold all of it. The difference between those two then is the loss 210,000. We're going to have to allocate that loss to the partners in accordance with their profit sharing agreement. So take K, C and M and so we're going to say that if we took the 530,000 minus the 320,000 we have a loss of 210. If we multiply that times 0.5 we get the 105 for K's share of that. We've got the 210 times 0.33333 is close to what we want. What we really want is and what we'll have here when we use this sell is 210 times or divided by times 1, third or divided by 3, 70,000. And then lastly we've got 210,000 times 0.16666 on forever and we have something close to what we're going to have there. So we'll do that same calculation here. What we'll do is we'll sum these up which will be a subtraction problem because it's going to sum up a positive and negative number and then multiply it times the percentages which will just be the same things. It'll be 210,000 times 50%, 210,000 times 0.33 and so on and so forth. So we're in F73 we're going to say equals SUM double click the sum function, highlight those two cells, close it up and then we're going to multiply it times that 50%. So we'll do the same thing here for G73 we're going to say equals SUM double click the sum function, highlight those two cells which will subtract those problems, close it up and then multiply that times the 0.33 which is really what happened there. Multiply that times the 0.33 which is really pretty much 1, third like multiplying it times 1, third because this isn't just 0.33 it's the whole thing there and that'll give us the 70,000 and then we'll do this one more time equals SUM double click the sum function, highlight those two cells, we'll close it up, multiply it times the ratio of the 0.17 which is really 0.1666 on forever and enter. So now if we add these up it should add up to 210 which will equal our loss over here. Okay so there we have that now we're going to bring down the balances so we're just going to have cash was at 182,500 we're adding the 320 and we can sum this up equals SUM double click the sum and add those two, tab. We'll do the same thing here we'll sum them up which will be a subtraction problem so equals SUM double click the sum, highlight those two, tab and then here we're just going to bring down the 240 nothing happened there so we can just say equals that 240 then we'll sum these two up which is going to be the 93,000 minus the 105 resulting in a negative number negative 12,000 so equals the SUM double click the sum highlight those two and there's our problem right there the case capital is going to be negative so and then we'll do the same thing here equals SUM double click and we'll highlight those two and we get to do this one more time equals SUM I'm going to say shift F9 and then shift 9 and then hold down shift and highlight the two and up and then close it up so we do that with all the keystrokes okay so there we have it now we have this problem here so that the capital account for K's capital account now is less is showing that K owes the company or the partnership money rather than vice versa that's a problem so we're going to go to K and say hey you know we solved the inventory at a loss and you owe the partnership as a result after we allocate with with profit sharing agreement and in this case we're going to say that K you know which could happen in a partnership when we're liquidating is going to say I'm not going to pay and at some point we might just say okay well we we gotta move forward with the liquidation process at some point so what are we going to do in that case we're going to have to allocate the loss here to the other two partners so we're going to have to allocate this loss to the other two partners now we have a problem because you know how are we going to allocate the loss with when we have a split of 50 33 and 17 we're going to have to these two need to add up to 100 in other words we need something that adds up to 100 between C and M so one way we can do this so we can go back to the original here and say it was a three two one we eliminate the three because we got rid of K's out of the equation so now we just have a two one so we could say that you know two and one add up to three so two over three is point six six six whatever and one over three is point three three so our new percentages when we do this then we'll equal two over three which is sixty six point six six six six on forever and equal one over three which is thirty three point three three three on forever and now we can we can allocate this out so now we're going to allocate this loss so we're just going to say that we're going to allocate the twelve thousand to these two partners so we'll do that by saying equals that number times this sixty six point six six six on forever percentage that'll give us eight thousand we'll do the same thing here equals that twelve thousand times the thirty three point three three three on forever gives us the four so the eight and the four of course add up to the twelve and the sixty six and the thirty three add up to a hundred okay so now we can bring down our balances once again so we didn't do anything here we're just going to bring down the cash equals the cash that's zero i'm just going to leave it blank and then the accounts payable equals the accounts payable nothing happened to that one here we're going to sum up the two bringing the balance to zero equals sum double click the sum highlight those two and tab balance at zero and then we're going to add these two up and actually this should be a subtraction problem we're going to subtract these two and let's let's represent that with a negative number here so i'm going to double click here and i'm just going to flip the sign and so i'm just going to put a negative in front of either of these numbers and we'll just a negative number times a positive will be a negative so i'm just going to put negative and then i'll double click here and go to the front of this number and put negative and there we have it so now it's just going to be this is the beginning capital minus the 8000 we'll do that with the sum function so equals sum double click the sum function highlight the 142500 and the 8000 to get 134500 we're going to do the same thing here equals sum double click the sum function highlight those two cells and enter so there we have it so now we've got cash we've got the accounts payable assets equal liabilities plus equity so the 502500 equals the 502500 our next step pay off the liability so the liabilities on the books for 240,000 we need to pay that we're going to pay it with cash so cash is going to go down by credit 240,000 and the liability is going to go down by 240 the accounts payable nothing's going to happen to equity maybe 240,000 nothing's going to happen to the capital accounts so we will sum this up then we're in the balance we're going to say equals sum double click the sum highlight those two numbers and tab bringing the cash down to 262500 then we're in e78 equals sum double click the sum function highlight those two numbers and tab they're back down to zero for the accounts payable and then in c's capital we'll just say equals that number and then in m's capital we'll just bring it down equals that number bringing the balances down now we have the cash and we've got the capital accounts and all we have to do is distribute the cash to the capital accounts that should be equal in total amounts which they are so we're just going to distribute this out so within c79 we're going to say that we're going to pay credit 262500 and then in g79 we're going to say negative 134500 and m79 negative 128000 and then we'll just bring down the balances so this and this will add up to zero we'll do that with the sum function equals the sum double click and highlight those two cells bringing the balance to zero we'll do the same here in g we'll say equals s you m double click the sum highlight those two cells bringing the balance to zero and then m equals the sum double click the sum highlight the two cells bringing the balance to zero so now we've zeroed out the capital accounts and we've liquidated the partnership we'll do that same process now with the trial balance so we've got the trial balance representing these same numbers as basically these items now in trial balance format we've got the assets in green the liabilities in orange and then the capital accounts in the blue debits are going to be positive numbers credits negative numbers the green zero means we're in balance okay we're going to do the same process here we're going to pay off uh we're going to we're going to sell the inventory for cash pay off the liabilities and then pay the partners but we'll have that added problem of a negative capital account which we'll have to deal with within this process so uh first we're going to say we got cash for the inventory we got cash 320 000 so here's cash it's going to go up we're going to do the same thing to it so i'm going to copy cash right click and copy we'll put that up top in j 70 right click and paste 123 the amount will be for 320 000 then we're going to credit inventory for the inventory that is there 530 so we'll right click on inventory and copy put that in j 71 right click and paste 123 then we'll indent home tab alignment increase indenting then we'll be in l 71 where we will say negative credit 530 000 then the difference between the two 530 minus 320 is 210 we need that in the debit side here so we're going to do the negative sum or plug formula to put that there so we're going to say negative sum double click the sum function and highlight those cells to bring it down to out to 210 000 now we just need to put that to an account which will be the gain or loss an income statement account so we're going to say right click and copy and put that in j 72 right click and paste 123 when we did this over here we put this gain or loss directly to the capital accounts allocating them directly to the capital accounts on the on this problem however we're going to first look at the gain or loss kind of a normal type of transaction we would see a gain or loss here then we'll allocate that gain or loss to the capital accounts as we would in like a closing process so let's do that we're going to say cash up top we're going to post that to the center column in p 70 where we will say equals and point to that 320 bringing the balance of 182 500 up by 322 500 2500 then the inventory is here we're going to post it to p 71 by saying equals point to the 530 bringing the balance down to zero and then we've got the gain down here in the p 78 so or it's the loss here's the loss we're in p 78 equals and we're going to point to that's 210 bringing the balance up to 210 which is a debit a loss and bring a net income to that same 210 so next step is we're going to just allocate this loss then to the capital accounts with the use of their percentages their profit percentages of profit sharing percentages so to do that we're going to say that this is going to go down first we'll copy the capital accounts we're going to debit these three capital accounts put those on top we'll put the debits on top this time so we'll copy these three capital accounts right click and copy we're going to put that up top in j 74 right click and paste 1 2 3 and then underneath that we're going to put this this gain or loss account so here's the gain or loss account we're going to right click on that copy and we'll put that in j 77 right click and paste 1 2 3 then we're going to go ahead and indent this go into the home tab alignment increase in denting and then we'll we'll go to the credit side we're going to make this go down so this is a debit balance we're going to do the opposite thing to it to make it go down which is a credit so we're going to put a negative 210 thousand and then we'll debit the capital accounts in accordance with their profit sharing agreement so here's case capital account we're going to say this equals i'm going to say negative of this number times the 50 percent and enter and then in c's capital account we're going to say this equals this number times the 33 percent and then in c's capital we're going to say this equals negative of this number times the 0.17 or 17 and if we add these up then it adds up to 210 which should add up to the credit of 210 okay so then then we're going to post this out so we're going to post this here's our here's our entry we're going to post case capital first here's case capital here it is on the trial balance we want to be in the middle column in p 73 where we will say equals point to that 105 thousand bringing the balance from 93 thousand down by 105 thousand two a negative 12 thousand and that's our problem so cat case capital now is a negative number we're going to have to deal with that because k basically owes the company money at this point and then we're going to post out c's capital here's c's capital we're going to post it to p 74 by saying equals point to that 70 thousand bringing the 200 1200 500 down by 72 142 500 and then we are going to post m's capital to here in p 75 by saying equals and then pointing to that 35 thousand bringing the 167 thousand down by 35 thousand two 132 thousand and then the loss is here and so we're going to allocate that here there's already something in cell p 78 so we'll double click on it go to the end of it say plus and then point to that 210 bringing the balance down to zero and bringing the net in the deficit credits back in balance okay so now we've allocated that out now the next problem is of course k's capital account is negative and that means that k owes the company money or the partnership money rather than vice versa and if we go to k and say hey you know you had a positive capital account and it went down to negative because we sold the inventory for as much as we could but we had this big loss and then we allocated it here and you're now you owe the partnership 12 000 dollars now if they don't pay the partnership the 12 000 dollars then we'll have to allocate that that loss to the other partners so you know if we do all we can do and we can't get paid the 12 000 dollars in this liquidation process then the other two are just going to have to eat the loss so that's what we'll have to do here and so we know that this needs to go down and so we're going to credit that and we're going to debit these two for for the difference so i'm going to copy these two first to put it on top so we'll highlight c and m we're going to have to debit those accounts to make them go down right click and copy we'll put that in j 79 right click and paste 123 and then uh we're going to have this account on the bottom so case account on the bottom right click and copy and we'll put that underneath in j 81 right click and paste what happened let's copy that one time right click and copy put that in j 81 right click and paste 123 so let me undo this redo okay okay so we want c's capital account so i'm going to right click and copy put that on the bottom right click and paste 123 and we're going to credit it for 12 000 so we want this to go to zero that's our first goal i'm going to indent this go into the home tab alignment increase indenting now we need to we need to allocate that based on their percentages but now that we don't have k involved we can't use the 50 33 17 because we're allocating k's percentage over here so we have to have a percentage that adds up to 100 between c and m and remember we came up to the 66 and 33 based on i having a split of three of two three between the two remaining partners so a split of two three so we'll use those percentages so we're going to say in k 79 negative of this number times that 66.66 enter and then m we're going to say negative of this number times and then that 33.33 and enter okay and then we'll post this out so we're going to say here's c capital here's c's capital we're going to double click on p 74 go to the end of it say plus and point to that's 8 000 and enter and then we got the m's capital here's m's capital we're going to double click on m go to the end of it plus and we're going to go to that 4 000 and enter and then here's k's capital which needs to go to zero here's k's capital on the trial balance we'll double click on it go to the end of it plus and then point to that 12 000 bringing it to zero putting us back in balance so there we have that okay so so now this that we're back with all negative capital accounts which means that the partnership owes the partner money which is the way it should be and then we just have this liability and cash next step we pay off the liability with the cash and then we can pay the partners so the liability is on the books for 240 we're going to pay the cash to pay it off so cash is a debit balance we're going to make it go down doing the opposite thing to it so i'm going to right click and copy cash we'll scroll down we're going to skip a line and then skip another line to put it on the bottom right click and paste 123 then i'm going to indent it home tab alignment increase indenting and the amount's going to be that 240 000 so in the credit side we'll put a negative 240 000 and then we'll debit something for the same amount so in k 83 negative of that number and then the amount we're going to we're going to put to the account we're going to put to the accounts payable in n 72 so we'll right click on n 72 copy and put that on top and j 83 right click and paste 123 so now we're just going to post this out so here's accounts payable on our journal entry here it is on our trial balance we want to be in p 72 where we will say equals and point to that 240 bringing the balance from 240 000 down by 242 0 then here's the cash we're going to go up to cash something's in it so we'll double click on it go to the end of it plus and then point to that cash 240 000 bringing the balance down to 262 500 so now we're just left with the cash and our capital accounts only for the two partners that are remaining that still have a balance so we will close this out we'll say cash has a as a debit balance we're going to make it go down and then by doing a credit and then we'll debit these two so these two are are going to be the debits we'll put these on top so we'll copy these two right click and copy scroll down we're going to put these on top in j 86 right click and paste 123 and then we'll go up to cash up top and in 70 right click and copy scroll down and put the cash underneath in j 88 right click and paste 123 we'll indent now home tab alignment increase indenting and then we can just put the numbers in so it's going to be whatever's there we can't use a formula to pick these up because of the circle reference but we're just going to put the number that's there we'll hard code it 134 500 and 128 000 and in the credit we can negative sum negative sum the plug formula is 262 500 which should equal what's in cash so this should bring everything down to zero let's see if it does we're going to go here to c capital here's c capital on the trial balance we're going to be in cell p 74 double click on it go to the end of it plus and then point to that 134 500 and enter so it goes down to zero that's good here's m's capital here's m on the trial balance we're here on p 75 double click go to the end of it plus and then point to that 128 000 and enter bringing the balance to zero and then here's cash so cash is going to be up top here's cash we're going to go in the middle double click go to the end of it plus and then we'll scroll back down and we'll pick up that cash 262 or yeah 500 and enter and that brings the balance down so now we're back to the zeros and we've liquidated the partnership