Post responses to two of your classmates. 2-3 sentences
A partner liquidation occurs when a partner or more than one decides that the partnership is no longer has a future or purpose. This decision is usually made and trading and business is wound up. This occurs in one of two ways a partner’s petition or a creditor’s petition.
The first step to a partner liquidation is to see all non cash assets for cash. Then record either a gain or loss on sale. The next step is to pay all liabilities of the partnership. The then remaining cash is distributed to the partners using the capital ration (Brown, 2019).
I can not find a real example of this but I did find a mad up partner liquidation. In this example there was partner A and partner B. The company had $20,000 in cash, $140,000 in non cash assets, and $50,000 in liabilities. The first step was to sell the non cash assets for cash. They sold the non cash assets for $100,000 which they then recorded as a loss of $40,000. This was then deducted equally from the the opening balances of each partner. Then they paid out their liabilities of $50,000. This left the partnership with $70,000 left. This $70,000 was then distributed to the partner A and B (Brown, 2019).
Brown, M. (2019, December 9). Liquidation of a partnership. Double Entry Bookkeeping. Retrieved September 27, 2022, from https://www.double-entry-bookkeeping.com/partnership/liquidation-of-a-partnership/
A company would initiate a partnership liquidation when all partners/parties involved in the partnership have agreed that the partnership is not helping them out in a good way, they see no good future with the partnership or they are experiencing financial difficulties that can’t be fixed. They see no purpose in having the partnership so they decide to end it. Partnership liquidation is conducted by, “partnership assets being converted into cash that is then used to pay partnership liabilities as well as any liquidation expenses. Any remaining cash is distributed to the individual partners based on their final capital balances. Once all cash has been distributed, the partnership’s books are permanently closed. If each partner has a capital balance large enough to absorb all liquidation losses and expenses, the accountant should experience little difficulty in recording this series of transactions.” Partnership liquidation can take a long time to complete. Although I could not find a company that has experienced a partnership liquidation, I found out that, “the amount of money each partner receives after paying the company’s debts depends on the amount left in his capital account. For example, if partner A has $25,000 in his capital account and partner B has $30,000 after company debt repayments, partner A will receive $25,000 and partner B will receive $30,000.”
Source: Jordan Meyers, “Definition of a Liquidating Partnership,” Chron.