Partnerships And Limited Liability Corporations
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Partnerships And Limited Liability Corporations as PDF for free.
More details
- Words: 4,242
- Pages: 89
Chapter 13 Partnerships and Limited Liability Corporations Accounting, 21st Edition Warren Reeve Fess
PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University
© Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved. Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.
Some Some of of the the action action has has been been automated, automated, so so click click the themouse mouse when when you you see see this this lightning lightning bolt bolt in in the thelower lower right-hand right-hand corner corner of of the the screen. screen. You You can can point point and and click click anywhere anywhere on on the the screen. screen.
Objectives Objectives 1. Describe the basic characteristics of After studying proprietorships, Aftercorporations, studying this this partnerships, and limitedchapter, liability corporation. you chapter, you should should 2. Describe and illustrate the equity reporting be able to: be able to: for proprietorships, corporations, partnerships, and limited liability corporations. 3. Describe and illustrate the accounting for forming a partnership.
Objectives Objectives 4. Describe and illustrate the accounting for dividing the net income and net loss of a partnership. 5. Describe and illustrate the accounting for the dissolution of a partnership. 6. Describe and illustrate the accounting for liquidation of a partnership. 7. Describe the lifecycle of a business, including the role of venture capitalists, initial public offerings, and underwriters.
Alternative Alternative Forms Forms of of Business Business Entities Entities Advantages A A proprietorship proprietorship isis owned owned by by one one individual. individual. Joe’s
Review Reviewof of Chapter Chapter 11
• Ease in organizing • Low cost of organizing Disadvantages • Difficulty in raising large amounts of capital • Unlimited liability
Alternative Alternative Forms Forms of of Business Business Entities Entities A A corporation corporation isis organized organized under under state state or or federal federal statutes statutes as as aa separate separate legal legal entity. entity. J & M, Inc.
Advantages • The ability to obtain large amounts of resources by issuing stocks • Limited liability for the owners Disadvantages • Double taxation • More complexity and regulations
Alternative Alternative Forms Forms of of Business Business Entities Entities
J & M, Inc.
A A business business may may organize organize as as an an SS Corporation. Corporation. The The IRS IRS allows allows income income to to pass pass through through the the SS Corporation Corporation to to the the individual individual stockholder stockholder without without the the corporation corporation having having to to pay pay tax tax on on the the income. income.
Alternative Alternative Forms Forms of of Business Business Entities Entities A A partnership partnership isis an an association association of of two two or or more more individuals. individuals.
Joe and Marty’s
Advantages • More financial resources than a proprietorship • Additional management skills
Alternative Alternative Forms Forms of of Business Business Entities Entities A A partnership partnership isis an an association association of of two two or or more more individuals. individuals.
Joe and Marty’s
• • • •
Disadvantages Limited life Unlimited liability Co-ownership of partnership property Mutual agency
Alternative Alternative Forms Forms of of Business Business Entities Entities An An important important right right of of partners partners isis to to participate participate in in the the income income of of the the partnership. partnership.
Alternative Alternative Forms Forms of of Business Business Entities Entities Each Each partner partner must must report report their their share share of of partnership partnership income income on on their their personal personal tax tax returns. returns.
Alternative Alternative Forms Forms of of Business Business Entities Entities A A partnership partnership isis created created by by aa contract, contract, known known as as the the partnership partnership agreement agreement or or articles articles of of partnership. partnership.
Alternative Alternative Forms Forms of of Business Business Entities Entities A A variant variant of of the the regular regular partnership partnership isis aa limited limitedThis This form form of of partnership partnership partnership. partnership. allows allows partners partners that that are are not not involved involved in in the the operations operations of of the the partnership partnership to to retain retain limited limited liability. liability.
Limited Limited Liability Liability Corporations Corporations
Combines the advantages of the corporate and partnership forms. Owners are termed “members” rather than “partners.” Members must create an operating agreement. LLC may elect to be treated as a partnership for tax purposes. Continued Continued
Limited Limited Liability Liability Corporations Corporations
Unless specified in the operating agreement, LLCs have a limited life. Members may elect operating the LLC as a “member managed” entity. LLC provides limited liability for the members. LLCs must file “articles of organization” with state governmental authorities.
Comparison Comparison of of Alternate Alternate Entity Entity Characteristics Characteristics Ease Ease of of Formation Formation Proprietorship Corporation Partnership LLC
Simple Complex Simple Moderate
Comparison Comparison of of Alternate Alternate Entity Entity Characteristics Characteristics Legal Legal Liability Liability Proprietorship Corporation Partnership LLC
No limitation Limited liability No limitation Limited liability
Comparison Comparison of of Alternate Alternate Entity Entity Characteristics Characteristics Taxation Taxation Proprietorship Corporation Partnership LLC
Nontaxable entity Taxable entity Nontaxable entity Nontaxable entity by election
Comparison Comparison of of Alternate Alternate Entity Entity Characteristics Characteristics Limitation Limitation on on Life Life of of Entity Entity Proprietorship Corporation Partnership LLC
Yes No Yes Yes
Comparison Comparison of of Alternate Alternate Entity Entity Characteristics Characteristics Ease Ease of of Raising Raising Capital Capital Proprietorship Corporation Partnership LLC
Difficult Easier Moderate Moderate
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Proprietorships Proprietorships Proprietorships use a capital account to record investments by the owner of the business. Withdrawals by the owner are recorded in the owner’s drawing account.
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Proprietorships Proprietorships Greene Landscapes Statement of Owner’s Equity For the year ended December 31, 2006 Duncan Greene, capital, Dec. 31, 2005 $345,000 Net income $79,000 Less withdrawals 35,000 Increase in owner’s equity 44,000 Duncan Greene, capital, Dec. 31, 2006 $389,000
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Corporations Corporations Investments by stockholders in the business use capital stock accounts, such as Common Stock and Preferred Stock. Dividends to owners (stockholders) are recorded by a debit to Retained Earnings.
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Corporations Corporations
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Partnerships Partnerships and and Limited Limited Liability Liability Corporations Corporations Investments and withdrawals for partnerships is similar to proprietorships, except there is a capital and drawing account for each partner. Limited liability corporations are similar to a partnership except that each owner is referred to as “member.”
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Partnerships Partnerships
Forming Forming aa Partnership Partnership Joseph Joseph Stevens Stevens and and Earl Earl Foster Foster agree agree to to combine combine their their hardware hardware businesses businesses in in aa partnership. partnership. They They agree agree that that the the partnership partnership isis to to assume assume the the liabilities liabilities of of the the separate separate businesses. businesses. Stevens’ Transfer of Assets, Liability, and Equity Apr. 1 Cash Accounts Receivable Merchandise Inventory Store Equipment Office Equipment Allowance for Doubtful Accounts Accounts Payable Joseph Stevens, Capital
7 200 00 16 300 00 28 700 00 5 400 00 1 500 00 1 500 00 2 600 00 55 000 00
Forming Forming aa Partnership Partnership A A similar similar entry entry would would be be made made for for the the assets, assets, liabilities, liabilities, and and equity equity of of Earl Earl Foster. Foster.
Forming Forming aa Partnership Partnership Assume Assume that that instead instead of of forming forming aa partnership, partnership, the the two two men men formed formed aa limited limited liability liability corporation. corporation. Stevens’ Transfer of Assets, Liability, and Equity Apr. 1 Cash Accounts Receivable Merchandise Inventory Store Equipment Office Equipment Allowance for Doubtful Accounts Accounts Payable Joseph Stevens, Member Equity
7 200 16 300 28 700 5 400 1 500
00 00 00 00 00 1 500 00 2 600 00 55 000 00
Dividing Dividing Income Income Services Services of of Partners Partners The The partnership partnership agreement agreement of of Jennifer Jennifer Stone Stone and and Crystal Crystal Mills Mills provides provides for for Stone Stone to to have have an an annual annual salary salary allowance allowance of of $30,000 $30,000 and and Mills Mills isis to to receive receive $24,000. $24,000. Any Any net net income income isis to to be be divided divided equally. equally. The The firm firm had had aa net net income income of of $75,000. $75,000. J. Stone C. Mills Total Salary allowance $30,000 $24,000 $54,000 Remaining income 10,500 10,500 21,000 Division of net income $40,500 $34,500 $75,000
Dividing Dividing Income Income Services Services of of Partners Partners Dec. 31 Income Summary
75 000 00
Jennifer Stone, Capital
40 500 00
Crystal Mills, Capital
34 500 00
Dividing Dividing Income Income LLC LLC Alternative Alternative Dec. 31 Income Summary
75 000 00
Jennifer Stone, Member Equity
40 500 00
Crystal Mills, Member Equity
34 500 00
Dividing Dividing Income Income Services Services of of Partners Partners and and Investments Investments The The partnership partnership agreement agreement of of Jennifer Jennifer Stone Stone and and Crystal Crystal Mills Mills provides provides for for Stone Stone to to have have an an annual annual salary salary allowance allowance of of $30,000 $30,000 and and Mills Mills isis to to receive receive $24,000. $24,000. Interest Interest of of 12% 12% isis provided provided on on each each partner’s partner’s capital capital balance balance on on January January 1. 1. Any Any net net income income isis to to be be divided divided equally. equally. The The firm firm had had aa net net income income of of $75,000. $75,000.
Dividing Dividing Income Income Services Services of of Partners Partners and and Investments Investments Salary allowance Interest allowance Remaining income Division of net income
J. Stone C. Mills Total $30,000 $24,000 $54,000 9,600 7,200 16,800 2,100 2,100 4,200 $41,700 $33,300 $75,000 $80,000 x $80,000 x $60,000 $60,000 xx 12% 12% 12% 12%
Dividing Dividing Income Income Services Services of of Partners Partners Dec. 31 Income Summary
75 000 00
Jennifer Stone, Capital
41 700 00
Crystal Mills, Capital
33 300 00
Dividing Dividing Income Income LLC LLC Alternative Alternative Dec. 31 Income Summary
75 000 00
Jennifer Stone, Member Equity
41 700 00
Crystal Mills, Member Equity
33 300 00
Dividing Dividing Income Income Allowances Allowances Exceed Exceed Net Net Income Income Assume Assume the the same same facts facts as as before before except except that that the the net net income income isis only only $50,000. $50,000. Salary allowance Interest allowance Total Deduct excess equally Division of net income
J. Stone $30,000 9,600 $39,600 10,400 $29,200
C. Mills Total $24,000 $54,000 7,200 16,800 $31,200 $70,800 10,400 20,800 $20,800 $50,000
Partnership Partnership Dissolution Dissolution Admitting Admitting aa Partner Partner A person may be admitted to a partnership only with the consent of all partners by: 1. Purchasing an interest from one or more of the current partners. 2. Contributing assets to the partnership.
Partnership Partnership Dissolution Dissolution Purchasing Purchasing an an Interest Interest in in aa Partnership Partnership Partners Partners Tom Tom Andrews Andrews and and Nathan Nathan Bell Bell have have capital capital balances balances of of $50,000 $50,000 each. each. On On June June 1, 1, each each sells sells one-fifth one-fifth of of his his equity equity to to Joe Joe Canter Canter for for $10,000 $10,000 in in cash. cash.
Partnership Partnership Dissolution Dissolution Purchasing Purchasing an an Interest Interest in in aa Partnership Partnership June 1 Tom Andrews, Capital Nathan Bell, Capital Joe Canter, Capital
10 000 00 10 000 00 20 000 00
For For aa LLC, LLC, members’ members’ equity equity accounts accounts would would have have been been used used rather rather than than capital capital accounts. accounts.
Partnership Partnership Dissolution Dissolution Contributing Contributing Assets Assets to to aa Partnership Partnership Partners Partners Donald Donald Lewis Lewis and and Gerald Gerald Morton Morton have have capital capital balances balances of of $35,000 $35,000 and and $25,000, $25,000, respectively. respectively. On On June June 1, 1, Sharon Sharon Nelson Nelson joins joins the the partnership partnership by by permission permission and and makes makes an an investment investment of of $20,000 $20,000 cash. cash.
Partnership Partnership Dissolution Dissolution Contributing Contributing Assets Assets to to aa Partnership Partnership June 1 Cash Sharon Nelson, Capital
20 000 00 20 000 00
For For aa LLC, LLC, Sharon Sharon Nelson, Nelson, Member Member Equity Equity would would have have been been credited. credited.
Partnership Partnership Dissolution Dissolution Revaluation Revaluation of of Assets Assets Partners Partners Donald Donald Lewis Lewis and and Gerald Gerald Morton Morton have have capital capital balances balances of of $35,000 $35,000 and and $25,000, $25,000, respectively. respectively. The The balance balance in in Merchandise Merchandise Inventory Inventory isis $14,000 $14,000 and and the the current current replacement replacement value value isis $17,000. $17,000. The The partners partners share share net net income income equally. equally.
Partnership Partnership Dissolution Dissolution Revaluation Revaluation of of Assets Assets June 1 Merchandise Inventory
3 000 00
Donald Lewis, Capital
1 500 00
Gerald Morton, Capital
1 500 00
Because Because the the LLC LLC alternative alternative follows follows aa pattern pattern of of replacing replacing “Capital” “Capital” with with “Member “Member Equity,” Equity,” the the LLC LLC entry entry will will not not be be shown shown again. again.
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses On On March March 1, 1, the the partnership partnership of of Marsha Marsha Jenkins Jenkins and and Helen Helen Kramer Kramer admit admit Alex Alex Diaz Diaz as as aa new new partner. partner. The The assets assets of of the the old old partnership partnership are are adjusted adjusted to to aa fair fair market market values values and and the the resulting resulting capital capital balances balances for for Jenkins Jenkins and and Kramer Kramer are are $30,000 $30,000 and and $24,000, $24,000, respectively. respectively.
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses Jenkins Jenkins and and Kramer Kramer agree agree to to admit admit Diaz Diaz as as aa partner partner for for $31,000. $31,000. In In return, return, Diaz Diaz will will receive receive aa one-third one-third equity equity in in the the partnership partnership and and will will share share income income and and losses losses equally equally with with Jenkins Jenkins and and Kramer. Kramer.
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses from from New New Partner Partner Equity of Jenkins Equity of Kramer Diaz’s Contribution Total equity after admitting Diaz Diaz’s interest (1/3 x $75,000)
$20,000 24,000 31,000 $75,000 $25,000
Diaz’s contribution Diaz’s equity after admission Bonus paid to Jenkins and Kramer
$31,000 25,000 $ 6,000
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses Mar. 1 Cash Alex Diaz, Capital
31 000 00 25 000 00
Marsha Jenkins, Capital
3 000 00
Helen Kramer, Capital
3 000 00
$6000 ÷ 2
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses After After adjusting adjusting the the market market values, values, the the capital capital balance balance of of Janice Janice Cowen Cowen isis $580,000 $580,000 and and the the capital capital balance balance of of Steve Steve Dodd Dodd isis $40,000. $40,000. Ellen Ellen Chua Chua receives receives aa one-fourth one-fourth interest interest in in the the partnership partnership for for aa contribution contribution of of $30,000. $30,000. Before Before admitting admitting Chua, Chua, Cowen Cowen and and Dodd Dodd shared shared net net income income using using aa 22 to to 11 ratio. ratio.
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses to to New New Partner Partner Equity of Cowen Equity of Dodd Chua’s Contribution Total equity after admitting Chua Chua’s interest (1/4 x $150,000) Chua’s contribution Chua’s equity after admission Bonus paid to Chua
$ 80,000 40,000 30,000 $150,000 $ 37,500 $30,000 37,500 $ 7,500
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses Mar. 1 Cash Janice Cowen, Capital Steve Dodd, Capital Ellen Chua, Capital
2/3 x $7,50 1/3 x 0 $7,50 0
30 000 00 5 000 00 2 500 00 37 500 00
Liquidating Liquidating Partnerships Partnerships When When aa partnership partnership goes goes out out of of business, business, the the winding-up winding-up process process isis called called the the liquidation liquidation of of aa partnership. partnership.
Liquidating Liquidating Partnerships Partnerships The The sale sale of of the the assets assets isis called called realization. realization.
Liquidating Liquidating Partnerships Partnerships Farley, Farley, Greene, Greene, and and Hall Hall share share income income and and losses losses in in aa ratio ratio of of 5:3:2. 5:3:2. On On April April 9, 9, after after discontinuing discontinuing operations, operations, the the firm firm had had the the following following trial trial balance. balance. Cash Noncash Assets Liabilities Jean Farley, Capital Brad Greene, Capital Alice Hall, Capital Total
$11,000 64,000
$75,000
$ 9,000 22,000 22,000 22,000 $75,000
Liquidating Liquidating Partnerships Partnerships Gain Gain on on Realization Realization Between Between April April 10 10 and and April April 30, 30, 2006, 2006, Farley, Farley, Greene, Greene, and and Hall Hall sell sell all all noncash noncash assets assets for for $72,000. $72,000.
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of gain +72,000
-64,000
Left side of statement
—
Liquidating Liquidating Partnerships Partnerships Balance before realization Sale of assets and division of gain
Farley Capital $22,000
Greene Hall Capital Capital $22,000 $22,000
+4,000
+2,400
+1,600
$8,000 $8,000 $8,000 $8,000 $8,000 $8,000 gain gain xx .50 .50 gain gain xx .30 .30gain gain xx .20 .20
Right side of statement
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of gain +72,000 –64,000 Balance after realization $83,000 $0
Left side of statement
— $9,000
Liquidating Liquidating Partnerships Partnerships Farley Capital $22,000
Greene Hall Capital Capital $22,000 $22,000
Balance before realization Sale of assets and division of gain +4,000 +2,400 +1,600 Balance after realization $26,000 $24,400 $23,600
Right side of statement
Liquidating Liquidating Partnerships Partnerships Gain Gain on on Realization Realization The The partnership’s partnership’s liabilities liabilities are are paid, paid, $9,000. $9,000.
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of gain +72,000 –64,000 Balance after realization $83,000 $ 0 Payment of liabilities –9,000 —
Left side of statement
— $9,000 –9,000
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of gain +72,000 –64,000 Balance after realization $83,000 $ 0 Payment of liabilities –9,000 — Balance after payment $74,000 $ 0
Left side of statement
— $9,000 –9,000 $ 0
Liquidating Liquidating Partnerships Partnerships Gain Gain on on Realization Realization The The remaining remaining cash, cash, $74,000, $74,000, isis paid paid to to each each partner partner in in accordance accordance with with the the partner’s partner’s capital capital balance. balance.
Liquidating Liquidating Partnerships Partnerships Balance before realization Sale of assets and division of gain Balance after realization Payment of liabilities Balance after payment Partners’ cash distributed Final balances
Noncash Cash Assets Liabilities $11,000 $64,000 $9,000 +72,000 $83,000 –9,000 $74,000 –74,000 $ 0
–64,000 $ 0 — $ 0 — $ 0
Left side of statement
— $9,000 –9,000 $ 0 — $ 0
Liquidating Liquidating Partnerships Partnerships Farley Capital $22,000
Greene Hall Capital Capital $22,000 $22,000
Balance before realization Sale of assets and division of gain +4,000 +2,400 +1,600 Balance after realization $26,000 $24,400 $23,600 Payment of liabilities — — — Balance after payment $26,000 $24,400 $23,600 Partners’ cash distributed –26,000 –24,400 –23,600 Final balances $ 0 $ 0 $ 0 Right side of statement
Liquidating Liquidating Partnerships Partnerships Sale Sale of of Assets Assets Apr. 30 Cash Noncash Assets Gain on Realization
72 000 00 64 000 00 8 000 00
Liquidating Liquidating Partnerships Partnerships Division Division of of Gain Gain Apr. 30 Gain on Realization
8 000 00
Jean Farley, Capital
4 000 00
Brad Greene, Capital
2 400 00
Alice Hall, Capital
1 600 00
Liquidating Liquidating Partnerships Partnerships Payment Payment of of Liabilities Liabilities Apr. 30 Liabilities Cash
9 000 00 9 000 00
Liquidating Liquidating Partnerships Partnerships Distribution Distribution of of Cash Cash to to Partners Partners Apr. 30 Jean Farley, Capital
26 000 00
Brad Greene, Capital
24 400 00
Alice Hall, Capital
23 600 00
Cash
74 000 00
Liquidating Liquidating Partnerships Partnerships Loss Loss on on Realization Realization Between Between April April 10 10 and and April April 30, 30, 2006, 2006, Farley, Farley, Greene, Greene, and and Hall Hall sell sell all all noncash noncash assets assets for for $44,000. $44,000.
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of loss +44,000 –64,000
Left side of statement
—
Liquidating Liquidating Partnerships Partnerships Farley Capital $22,000
Balance before realization Sale of assets and division of loss –10,000
Greene Hall Capital Capital $22,000 $22,000 –6,000
–4,000
$20,000 $20,000 $20,000 $20,000 $20,000 $20,000 loss loss xx .50 .50 loss loss xx .30 .30 loss loss xx .20 .20
Right side of statement
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of loss +44,000 –64,000 Balance after realization $55,000 $0
Left side of statement
— $9,000
Liquidating Liquidating Partnerships Partnerships Farley Capital $22,000
Greene Hall Capital Capital $22,000 $22,000
Balance before realization Sale of assets and division of loss –10,000 –6,000 –4,000 Balance after realization $12,000 $16,000 $18,000
Right side of statement
Liquidating Liquidating Partnerships Partnerships Loss Loss on on Realization Realization The The liabilities liabilities of of the the partnership partnership are are paid, paid, $9,000. $9,000.
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of loss +44,000 –64,000 Balance after realization $55,000 $ 0 Payment of liabilities –9,000 —
Left side of statement
— $9,000 –9,000
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of loss +44,000 –64,000 Balance after realization $55,000 $ 0 Payment of liabilities –9,000 — Balance after payment $46,000 $ 0
Left side of statement
— $9,000 –9,000 $ 0
Liquidating Liquidating Partnerships Partnerships Loss Loss on on Realization Realization The The remaining remaining cash, cash, $46,000, $46,000, isis paid paid to to each each partner partner in in accordance accordance with with the the partner’s partner’s capital capital balance. balance.
Liquidating Liquidating Partnerships Partnerships Balance before realization Sale of assets and division of loss Balance after realization Payment of liabilities Balance after payment Partners’ cash distributed Final balances
Noncash Cash Assets Liabilities $11,000 $64,000 $9,000 +44,000 $55,000 –9,000 $46,000 –46,000 $ 0
–64,000 $ 0 — $ 0 — $ 0
Left side of statement
— $9,000 –9,000 $ 0 — $ 0
Liquidating Liquidating Partnerships Partnerships Balance before realization Sale of assets and division of loss Balance after realization Payment of liabilities Balance after payment Partners’ cash distributed Final balances
Farley Capital $22,000
Greene Hall Capital Capital $22,000 $22,000
–10,000 $12,000 — $12,000 –12,000 $ 0
–6,000 $16,000 — $16,000 –16,000 $ 0
Right side of statement
–4,000 $18,000 — $18,000 –18,000 $ 0
Liquidating Liquidating Partnerships Partnerships Sale Sale of of Assets Assets Apr. 30 Cash Loss on Realization Noncash Assets
44 000 00 20 000 00 64 000 00
Liquidating Liquidating Partnerships Partnerships Division Division of of Loss Loss Apr. 30 Jean Farley, Capital
10 000 00
Brad Greene, Capital
6 000 00
Alice Hall, Capital
4 000 00
Loss on Realization
20 000 00
Liquidating Liquidating Partnerships Partnerships Payment Payment of of Liabilities Liabilities Apr. 30 Liabilities Cash
9 000 00 9 000 00
Liquidating Liquidating Partnerships Partnerships Distribution Distribution to to Partners Partners Apr. 30 Jean Farley, Capital
12 000 00
Brad Greene, Capital
16 000 00
Alice Hall, Capital
18 000 00
Cash
46 000 00
Lifecycle Lifecycle of of aa Business Business Business Stage
Principal Advantage Form easily: Jacobi forms a Della’s Delights, business by obtaining a Proprietorship local business license and Jeff Jacobi, Proprietor opening a bank account. Della’s Delights, Partnership Jacobi and Lange, Partners
Expand capital and expertise: Jacobi admits a new partner that contributes capital and expertise. Continued
Lifecycle Lifecycle of of aa Business Business Business Stage
Principal Advantage
Della’s Delights, LLC
Limit legal liability: The partnership is changed to an LLC to limit legal liability of owners.
Della’s Delights, Inc.
Simplify raising capital: The LLC is changed to a corporation to raise capital from the public.
Continued
Lifecycle Lifecycle of of aa Business Business Business Stage
Principal Advantage
Della’s Delights, Inc. a Provide exit: The company division of International is sold for cash. Foods, Inc.
A A venture venture capitalist capitalist isis an an individual individual or or firm firm that that provides provides equity equity financing financing for for aa new new company. company.
Chapter 13 The The End End
PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University
© Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved. Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.
Some Some of of the the action action has has been been automated, automated, so so click click the themouse mouse when when you you see see this this lightning lightning bolt bolt in in the thelower lower right-hand right-hand corner corner of of the the screen. screen. You You can can point point and and click click anywhere anywhere on on the the screen. screen.
Objectives Objectives 1. Describe the basic characteristics of After studying proprietorships, Aftercorporations, studying this this partnerships, and limitedchapter, liability corporation. you chapter, you should should 2. Describe and illustrate the equity reporting be able to: be able to: for proprietorships, corporations, partnerships, and limited liability corporations. 3. Describe and illustrate the accounting for forming a partnership.
Objectives Objectives 4. Describe and illustrate the accounting for dividing the net income and net loss of a partnership. 5. Describe and illustrate the accounting for the dissolution of a partnership. 6. Describe and illustrate the accounting for liquidation of a partnership. 7. Describe the lifecycle of a business, including the role of venture capitalists, initial public offerings, and underwriters.
Alternative Alternative Forms Forms of of Business Business Entities Entities Advantages A A proprietorship proprietorship isis owned owned by by one one individual. individual. Joe’s
Review Reviewof of Chapter Chapter 11
• Ease in organizing • Low cost of organizing Disadvantages • Difficulty in raising large amounts of capital • Unlimited liability
Alternative Alternative Forms Forms of of Business Business Entities Entities A A corporation corporation isis organized organized under under state state or or federal federal statutes statutes as as aa separate separate legal legal entity. entity. J & M, Inc.
Advantages • The ability to obtain large amounts of resources by issuing stocks • Limited liability for the owners Disadvantages • Double taxation • More complexity and regulations
Alternative Alternative Forms Forms of of Business Business Entities Entities
J & M, Inc.
A A business business may may organize organize as as an an SS Corporation. Corporation. The The IRS IRS allows allows income income to to pass pass through through the the SS Corporation Corporation to to the the individual individual stockholder stockholder without without the the corporation corporation having having to to pay pay tax tax on on the the income. income.
Alternative Alternative Forms Forms of of Business Business Entities Entities A A partnership partnership isis an an association association of of two two or or more more individuals. individuals.
Joe and Marty’s
Advantages • More financial resources than a proprietorship • Additional management skills
Alternative Alternative Forms Forms of of Business Business Entities Entities A A partnership partnership isis an an association association of of two two or or more more individuals. individuals.
Joe and Marty’s
• • • •
Disadvantages Limited life Unlimited liability Co-ownership of partnership property Mutual agency
Alternative Alternative Forms Forms of of Business Business Entities Entities An An important important right right of of partners partners isis to to participate participate in in the the income income of of the the partnership. partnership.
Alternative Alternative Forms Forms of of Business Business Entities Entities Each Each partner partner must must report report their their share share of of partnership partnership income income on on their their personal personal tax tax returns. returns.
Alternative Alternative Forms Forms of of Business Business Entities Entities A A partnership partnership isis created created by by aa contract, contract, known known as as the the partnership partnership agreement agreement or or articles articles of of partnership. partnership.
Alternative Alternative Forms Forms of of Business Business Entities Entities A A variant variant of of the the regular regular partnership partnership isis aa limited limitedThis This form form of of partnership partnership partnership. partnership. allows allows partners partners that that are are not not involved involved in in the the operations operations of of the the partnership partnership to to retain retain limited limited liability. liability.
Limited Limited Liability Liability Corporations Corporations
Combines the advantages of the corporate and partnership forms. Owners are termed “members” rather than “partners.” Members must create an operating agreement. LLC may elect to be treated as a partnership for tax purposes. Continued Continued
Limited Limited Liability Liability Corporations Corporations
Unless specified in the operating agreement, LLCs have a limited life. Members may elect operating the LLC as a “member managed” entity. LLC provides limited liability for the members. LLCs must file “articles of organization” with state governmental authorities.
Comparison Comparison of of Alternate Alternate Entity Entity Characteristics Characteristics Ease Ease of of Formation Formation Proprietorship Corporation Partnership LLC
Simple Complex Simple Moderate
Comparison Comparison of of Alternate Alternate Entity Entity Characteristics Characteristics Legal Legal Liability Liability Proprietorship Corporation Partnership LLC
No limitation Limited liability No limitation Limited liability
Comparison Comparison of of Alternate Alternate Entity Entity Characteristics Characteristics Taxation Taxation Proprietorship Corporation Partnership LLC
Nontaxable entity Taxable entity Nontaxable entity Nontaxable entity by election
Comparison Comparison of of Alternate Alternate Entity Entity Characteristics Characteristics Limitation Limitation on on Life Life of of Entity Entity Proprietorship Corporation Partnership LLC
Yes No Yes Yes
Comparison Comparison of of Alternate Alternate Entity Entity Characteristics Characteristics Ease Ease of of Raising Raising Capital Capital Proprietorship Corporation Partnership LLC
Difficult Easier Moderate Moderate
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Proprietorships Proprietorships Proprietorships use a capital account to record investments by the owner of the business. Withdrawals by the owner are recorded in the owner’s drawing account.
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Proprietorships Proprietorships Greene Landscapes Statement of Owner’s Equity For the year ended December 31, 2006 Duncan Greene, capital, Dec. 31, 2005 $345,000 Net income $79,000 Less withdrawals 35,000 Increase in owner’s equity 44,000 Duncan Greene, capital, Dec. 31, 2006 $389,000
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Corporations Corporations Investments by stockholders in the business use capital stock accounts, such as Common Stock and Preferred Stock. Dividends to owners (stockholders) are recorded by a debit to Retained Earnings.
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Corporations Corporations
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Partnerships Partnerships and and Limited Limited Liability Liability Corporations Corporations Investments and withdrawals for partnerships is similar to proprietorships, except there is a capital and drawing account for each partner. Limited liability corporations are similar to a partnership except that each owner is referred to as “member.”
Equity Equity Reporting Reporting for for Alternative Alternative Entity Entity Forms Forms Partnerships Partnerships
Forming Forming aa Partnership Partnership Joseph Joseph Stevens Stevens and and Earl Earl Foster Foster agree agree to to combine combine their their hardware hardware businesses businesses in in aa partnership. partnership. They They agree agree that that the the partnership partnership isis to to assume assume the the liabilities liabilities of of the the separate separate businesses. businesses. Stevens’ Transfer of Assets, Liability, and Equity Apr. 1 Cash Accounts Receivable Merchandise Inventory Store Equipment Office Equipment Allowance for Doubtful Accounts Accounts Payable Joseph Stevens, Capital
7 200 00 16 300 00 28 700 00 5 400 00 1 500 00 1 500 00 2 600 00 55 000 00
Forming Forming aa Partnership Partnership A A similar similar entry entry would would be be made made for for the the assets, assets, liabilities, liabilities, and and equity equity of of Earl Earl Foster. Foster.
Forming Forming aa Partnership Partnership Assume Assume that that instead instead of of forming forming aa partnership, partnership, the the two two men men formed formed aa limited limited liability liability corporation. corporation. Stevens’ Transfer of Assets, Liability, and Equity Apr. 1 Cash Accounts Receivable Merchandise Inventory Store Equipment Office Equipment Allowance for Doubtful Accounts Accounts Payable Joseph Stevens, Member Equity
7 200 16 300 28 700 5 400 1 500
00 00 00 00 00 1 500 00 2 600 00 55 000 00
Dividing Dividing Income Income Services Services of of Partners Partners The The partnership partnership agreement agreement of of Jennifer Jennifer Stone Stone and and Crystal Crystal Mills Mills provides provides for for Stone Stone to to have have an an annual annual salary salary allowance allowance of of $30,000 $30,000 and and Mills Mills isis to to receive receive $24,000. $24,000. Any Any net net income income isis to to be be divided divided equally. equally. The The firm firm had had aa net net income income of of $75,000. $75,000. J. Stone C. Mills Total Salary allowance $30,000 $24,000 $54,000 Remaining income 10,500 10,500 21,000 Division of net income $40,500 $34,500 $75,000
Dividing Dividing Income Income Services Services of of Partners Partners Dec. 31 Income Summary
75 000 00
Jennifer Stone, Capital
40 500 00
Crystal Mills, Capital
34 500 00
Dividing Dividing Income Income LLC LLC Alternative Alternative Dec. 31 Income Summary
75 000 00
Jennifer Stone, Member Equity
40 500 00
Crystal Mills, Member Equity
34 500 00
Dividing Dividing Income Income Services Services of of Partners Partners and and Investments Investments The The partnership partnership agreement agreement of of Jennifer Jennifer Stone Stone and and Crystal Crystal Mills Mills provides provides for for Stone Stone to to have have an an annual annual salary salary allowance allowance of of $30,000 $30,000 and and Mills Mills isis to to receive receive $24,000. $24,000. Interest Interest of of 12% 12% isis provided provided on on each each partner’s partner’s capital capital balance balance on on January January 1. 1. Any Any net net income income isis to to be be divided divided equally. equally. The The firm firm had had aa net net income income of of $75,000. $75,000.
Dividing Dividing Income Income Services Services of of Partners Partners and and Investments Investments Salary allowance Interest allowance Remaining income Division of net income
J. Stone C. Mills Total $30,000 $24,000 $54,000 9,600 7,200 16,800 2,100 2,100 4,200 $41,700 $33,300 $75,000 $80,000 x $80,000 x $60,000 $60,000 xx 12% 12% 12% 12%
Dividing Dividing Income Income Services Services of of Partners Partners Dec. 31 Income Summary
75 000 00
Jennifer Stone, Capital
41 700 00
Crystal Mills, Capital
33 300 00
Dividing Dividing Income Income LLC LLC Alternative Alternative Dec. 31 Income Summary
75 000 00
Jennifer Stone, Member Equity
41 700 00
Crystal Mills, Member Equity
33 300 00
Dividing Dividing Income Income Allowances Allowances Exceed Exceed Net Net Income Income Assume Assume the the same same facts facts as as before before except except that that the the net net income income isis only only $50,000. $50,000. Salary allowance Interest allowance Total Deduct excess equally Division of net income
J. Stone $30,000 9,600 $39,600 10,400 $29,200
C. Mills Total $24,000 $54,000 7,200 16,800 $31,200 $70,800 10,400 20,800 $20,800 $50,000
Partnership Partnership Dissolution Dissolution Admitting Admitting aa Partner Partner A person may be admitted to a partnership only with the consent of all partners by: 1. Purchasing an interest from one or more of the current partners. 2. Contributing assets to the partnership.
Partnership Partnership Dissolution Dissolution Purchasing Purchasing an an Interest Interest in in aa Partnership Partnership Partners Partners Tom Tom Andrews Andrews and and Nathan Nathan Bell Bell have have capital capital balances balances of of $50,000 $50,000 each. each. On On June June 1, 1, each each sells sells one-fifth one-fifth of of his his equity equity to to Joe Joe Canter Canter for for $10,000 $10,000 in in cash. cash.
Partnership Partnership Dissolution Dissolution Purchasing Purchasing an an Interest Interest in in aa Partnership Partnership June 1 Tom Andrews, Capital Nathan Bell, Capital Joe Canter, Capital
10 000 00 10 000 00 20 000 00
For For aa LLC, LLC, members’ members’ equity equity accounts accounts would would have have been been used used rather rather than than capital capital accounts. accounts.
Partnership Partnership Dissolution Dissolution Contributing Contributing Assets Assets to to aa Partnership Partnership Partners Partners Donald Donald Lewis Lewis and and Gerald Gerald Morton Morton have have capital capital balances balances of of $35,000 $35,000 and and $25,000, $25,000, respectively. respectively. On On June June 1, 1, Sharon Sharon Nelson Nelson joins joins the the partnership partnership by by permission permission and and makes makes an an investment investment of of $20,000 $20,000 cash. cash.
Partnership Partnership Dissolution Dissolution Contributing Contributing Assets Assets to to aa Partnership Partnership June 1 Cash Sharon Nelson, Capital
20 000 00 20 000 00
For For aa LLC, LLC, Sharon Sharon Nelson, Nelson, Member Member Equity Equity would would have have been been credited. credited.
Partnership Partnership Dissolution Dissolution Revaluation Revaluation of of Assets Assets Partners Partners Donald Donald Lewis Lewis and and Gerald Gerald Morton Morton have have capital capital balances balances of of $35,000 $35,000 and and $25,000, $25,000, respectively. respectively. The The balance balance in in Merchandise Merchandise Inventory Inventory isis $14,000 $14,000 and and the the current current replacement replacement value value isis $17,000. $17,000. The The partners partners share share net net income income equally. equally.
Partnership Partnership Dissolution Dissolution Revaluation Revaluation of of Assets Assets June 1 Merchandise Inventory
3 000 00
Donald Lewis, Capital
1 500 00
Gerald Morton, Capital
1 500 00
Because Because the the LLC LLC alternative alternative follows follows aa pattern pattern of of replacing replacing “Capital” “Capital” with with “Member “Member Equity,” Equity,” the the LLC LLC entry entry will will not not be be shown shown again. again.
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses On On March March 1, 1, the the partnership partnership of of Marsha Marsha Jenkins Jenkins and and Helen Helen Kramer Kramer admit admit Alex Alex Diaz Diaz as as aa new new partner. partner. The The assets assets of of the the old old partnership partnership are are adjusted adjusted to to aa fair fair market market values values and and the the resulting resulting capital capital balances balances for for Jenkins Jenkins and and Kramer Kramer are are $30,000 $30,000 and and $24,000, $24,000, respectively. respectively.
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses Jenkins Jenkins and and Kramer Kramer agree agree to to admit admit Diaz Diaz as as aa partner partner for for $31,000. $31,000. In In return, return, Diaz Diaz will will receive receive aa one-third one-third equity equity in in the the partnership partnership and and will will share share income income and and losses losses equally equally with with Jenkins Jenkins and and Kramer. Kramer.
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses from from New New Partner Partner Equity of Jenkins Equity of Kramer Diaz’s Contribution Total equity after admitting Diaz Diaz’s interest (1/3 x $75,000)
$20,000 24,000 31,000 $75,000 $25,000
Diaz’s contribution Diaz’s equity after admission Bonus paid to Jenkins and Kramer
$31,000 25,000 $ 6,000
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses Mar. 1 Cash Alex Diaz, Capital
31 000 00 25 000 00
Marsha Jenkins, Capital
3 000 00
Helen Kramer, Capital
3 000 00
$6000 ÷ 2
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses After After adjusting adjusting the the market market values, values, the the capital capital balance balance of of Janice Janice Cowen Cowen isis $580,000 $580,000 and and the the capital capital balance balance of of Steve Steve Dodd Dodd isis $40,000. $40,000. Ellen Ellen Chua Chua receives receives aa one-fourth one-fourth interest interest in in the the partnership partnership for for aa contribution contribution of of $30,000. $30,000. Before Before admitting admitting Chua, Chua, Cowen Cowen and and Dodd Dodd shared shared net net income income using using aa 22 to to 11 ratio. ratio.
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses to to New New Partner Partner Equity of Cowen Equity of Dodd Chua’s Contribution Total equity after admitting Chua Chua’s interest (1/4 x $150,000) Chua’s contribution Chua’s equity after admission Bonus paid to Chua
$ 80,000 40,000 30,000 $150,000 $ 37,500 $30,000 37,500 $ 7,500
Partnership Partnership Dissolution Dissolution Partner Partner Bonuses Bonuses Mar. 1 Cash Janice Cowen, Capital Steve Dodd, Capital Ellen Chua, Capital
2/3 x $7,50 1/3 x 0 $7,50 0
30 000 00 5 000 00 2 500 00 37 500 00
Liquidating Liquidating Partnerships Partnerships When When aa partnership partnership goes goes out out of of business, business, the the winding-up winding-up process process isis called called the the liquidation liquidation of of aa partnership. partnership.
Liquidating Liquidating Partnerships Partnerships The The sale sale of of the the assets assets isis called called realization. realization.
Liquidating Liquidating Partnerships Partnerships Farley, Farley, Greene, Greene, and and Hall Hall share share income income and and losses losses in in aa ratio ratio of of 5:3:2. 5:3:2. On On April April 9, 9, after after discontinuing discontinuing operations, operations, the the firm firm had had the the following following trial trial balance. balance. Cash Noncash Assets Liabilities Jean Farley, Capital Brad Greene, Capital Alice Hall, Capital Total
$11,000 64,000
$75,000
$ 9,000 22,000 22,000 22,000 $75,000
Liquidating Liquidating Partnerships Partnerships Gain Gain on on Realization Realization Between Between April April 10 10 and and April April 30, 30, 2006, 2006, Farley, Farley, Greene, Greene, and and Hall Hall sell sell all all noncash noncash assets assets for for $72,000. $72,000.
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of gain +72,000
-64,000
Left side of statement
—
Liquidating Liquidating Partnerships Partnerships Balance before realization Sale of assets and division of gain
Farley Capital $22,000
Greene Hall Capital Capital $22,000 $22,000
+4,000
+2,400
+1,600
$8,000 $8,000 $8,000 $8,000 $8,000 $8,000 gain gain xx .50 .50 gain gain xx .30 .30gain gain xx .20 .20
Right side of statement
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of gain +72,000 –64,000 Balance after realization $83,000 $0
Left side of statement
— $9,000
Liquidating Liquidating Partnerships Partnerships Farley Capital $22,000
Greene Hall Capital Capital $22,000 $22,000
Balance before realization Sale of assets and division of gain +4,000 +2,400 +1,600 Balance after realization $26,000 $24,400 $23,600
Right side of statement
Liquidating Liquidating Partnerships Partnerships Gain Gain on on Realization Realization The The partnership’s partnership’s liabilities liabilities are are paid, paid, $9,000. $9,000.
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of gain +72,000 –64,000 Balance after realization $83,000 $ 0 Payment of liabilities –9,000 —
Left side of statement
— $9,000 –9,000
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of gain +72,000 –64,000 Balance after realization $83,000 $ 0 Payment of liabilities –9,000 — Balance after payment $74,000 $ 0
Left side of statement
— $9,000 –9,000 $ 0
Liquidating Liquidating Partnerships Partnerships Gain Gain on on Realization Realization The The remaining remaining cash, cash, $74,000, $74,000, isis paid paid to to each each partner partner in in accordance accordance with with the the partner’s partner’s capital capital balance. balance.
Liquidating Liquidating Partnerships Partnerships Balance before realization Sale of assets and division of gain Balance after realization Payment of liabilities Balance after payment Partners’ cash distributed Final balances
Noncash Cash Assets Liabilities $11,000 $64,000 $9,000 +72,000 $83,000 –9,000 $74,000 –74,000 $ 0
–64,000 $ 0 — $ 0 — $ 0
Left side of statement
— $9,000 –9,000 $ 0 — $ 0
Liquidating Liquidating Partnerships Partnerships Farley Capital $22,000
Greene Hall Capital Capital $22,000 $22,000
Balance before realization Sale of assets and division of gain +4,000 +2,400 +1,600 Balance after realization $26,000 $24,400 $23,600 Payment of liabilities — — — Balance after payment $26,000 $24,400 $23,600 Partners’ cash distributed –26,000 –24,400 –23,600 Final balances $ 0 $ 0 $ 0 Right side of statement
Liquidating Liquidating Partnerships Partnerships Sale Sale of of Assets Assets Apr. 30 Cash Noncash Assets Gain on Realization
72 000 00 64 000 00 8 000 00
Liquidating Liquidating Partnerships Partnerships Division Division of of Gain Gain Apr. 30 Gain on Realization
8 000 00
Jean Farley, Capital
4 000 00
Brad Greene, Capital
2 400 00
Alice Hall, Capital
1 600 00
Liquidating Liquidating Partnerships Partnerships Payment Payment of of Liabilities Liabilities Apr. 30 Liabilities Cash
9 000 00 9 000 00
Liquidating Liquidating Partnerships Partnerships Distribution Distribution of of Cash Cash to to Partners Partners Apr. 30 Jean Farley, Capital
26 000 00
Brad Greene, Capital
24 400 00
Alice Hall, Capital
23 600 00
Cash
74 000 00
Liquidating Liquidating Partnerships Partnerships Loss Loss on on Realization Realization Between Between April April 10 10 and and April April 30, 30, 2006, 2006, Farley, Farley, Greene, Greene, and and Hall Hall sell sell all all noncash noncash assets assets for for $44,000. $44,000.
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of loss +44,000 –64,000
Left side of statement
—
Liquidating Liquidating Partnerships Partnerships Farley Capital $22,000
Balance before realization Sale of assets and division of loss –10,000
Greene Hall Capital Capital $22,000 $22,000 –6,000
–4,000
$20,000 $20,000 $20,000 $20,000 $20,000 $20,000 loss loss xx .50 .50 loss loss xx .30 .30 loss loss xx .20 .20
Right side of statement
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of loss +44,000 –64,000 Balance after realization $55,000 $0
Left side of statement
— $9,000
Liquidating Liquidating Partnerships Partnerships Farley Capital $22,000
Greene Hall Capital Capital $22,000 $22,000
Balance before realization Sale of assets and division of loss –10,000 –6,000 –4,000 Balance after realization $12,000 $16,000 $18,000
Right side of statement
Liquidating Liquidating Partnerships Partnerships Loss Loss on on Realization Realization The The liabilities liabilities of of the the partnership partnership are are paid, paid, $9,000. $9,000.
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of loss +44,000 –64,000 Balance after realization $55,000 $ 0 Payment of liabilities –9,000 —
Left side of statement
— $9,000 –9,000
Liquidating Liquidating Partnerships Partnerships Noncash Cash Assets Liabilities $11,000 $64,000 $9,000
Balance before realization Sale of assets and division of loss +44,000 –64,000 Balance after realization $55,000 $ 0 Payment of liabilities –9,000 — Balance after payment $46,000 $ 0
Left side of statement
— $9,000 –9,000 $ 0
Liquidating Liquidating Partnerships Partnerships Loss Loss on on Realization Realization The The remaining remaining cash, cash, $46,000, $46,000, isis paid paid to to each each partner partner in in accordance accordance with with the the partner’s partner’s capital capital balance. balance.
Liquidating Liquidating Partnerships Partnerships Balance before realization Sale of assets and division of loss Balance after realization Payment of liabilities Balance after payment Partners’ cash distributed Final balances
Noncash Cash Assets Liabilities $11,000 $64,000 $9,000 +44,000 $55,000 –9,000 $46,000 –46,000 $ 0
–64,000 $ 0 — $ 0 — $ 0
Left side of statement
— $9,000 –9,000 $ 0 — $ 0
Liquidating Liquidating Partnerships Partnerships Balance before realization Sale of assets and division of loss Balance after realization Payment of liabilities Balance after payment Partners’ cash distributed Final balances
Farley Capital $22,000
Greene Hall Capital Capital $22,000 $22,000
–10,000 $12,000 — $12,000 –12,000 $ 0
–6,000 $16,000 — $16,000 –16,000 $ 0
Right side of statement
–4,000 $18,000 — $18,000 –18,000 $ 0
Liquidating Liquidating Partnerships Partnerships Sale Sale of of Assets Assets Apr. 30 Cash Loss on Realization Noncash Assets
44 000 00 20 000 00 64 000 00
Liquidating Liquidating Partnerships Partnerships Division Division of of Loss Loss Apr. 30 Jean Farley, Capital
10 000 00
Brad Greene, Capital
6 000 00
Alice Hall, Capital
4 000 00
Loss on Realization
20 000 00
Liquidating Liquidating Partnerships Partnerships Payment Payment of of Liabilities Liabilities Apr. 30 Liabilities Cash
9 000 00 9 000 00
Liquidating Liquidating Partnerships Partnerships Distribution Distribution to to Partners Partners Apr. 30 Jean Farley, Capital
12 000 00
Brad Greene, Capital
16 000 00
Alice Hall, Capital
18 000 00
Cash
46 000 00
Lifecycle Lifecycle of of aa Business Business Business Stage
Principal Advantage Form easily: Jacobi forms a Della’s Delights, business by obtaining a Proprietorship local business license and Jeff Jacobi, Proprietor opening a bank account. Della’s Delights, Partnership Jacobi and Lange, Partners
Expand capital and expertise: Jacobi admits a new partner that contributes capital and expertise. Continued
Lifecycle Lifecycle of of aa Business Business Business Stage
Principal Advantage
Della’s Delights, LLC
Limit legal liability: The partnership is changed to an LLC to limit legal liability of owners.
Della’s Delights, Inc.
Simplify raising capital: The LLC is changed to a corporation to raise capital from the public.
Continued
Lifecycle Lifecycle of of aa Business Business Business Stage
Principal Advantage
Della’s Delights, Inc. a Provide exit: The company division of International is sold for cash. Foods, Inc.
A A venture venture capitalist capitalist isis an an individual individual or or firm firm that that provides provides equity equity financing financing for for aa new new company. company.
Chapter 13 The The End End
Related Documents
Partnerships And Limited Liability Corporations
June 2020 19
Limited Liability
August 2019 66
159 Limited Liability
June 2020 16
Limited Liability Partnership
June 2020 22
Limited Liability Partnership- Faq
May 2020 24
Triple Leveraged Family Limited Partnerships
May 2020 3More Documents from "Bill Black"
Partnerships And Limited Liability Corporations
June 2020 19
Cost Behavior And Costvolume-profit Analysis
June 2020 20
Chapter 1 Modul Manajemen Keuangan
June 2020 20
Current Liabilities
June 2020 18
Process Cost Systems
June 2020 18