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Chapter 13

Partnerships and Limited


Liability Corporations
Accounting, 21st Edition
Warren Reeve Fess

© Copyright 2004 South-Western, a division


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Professor Emeritus of Accounting
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Objectives
Objectives
1. Describe the basic characteristics of
After
proprietorships, studying
studying this
Aftercorporations,this partnerships,
and limitedchapter,
liability corporation.
chapter, you
you should
should
2. Describe and illustrate
be able the
to:
be able to: equity reporting
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 • Ease in organizing
owned
owned by
by one
one • Low cost of
individual.
individual. organizing
Disadvantages
Joe’s • Difficulty in raising
large amounts of
capital
• Unlimited liability
Review
Reviewof
of Chapter
Chapter 11
Alternative
Alternative Forms
Forms of
of Business
Business Entities
Entities
A Advantages
A corporation
corporation isis
organized • The ability to obtain large
organized underunder amounts of resources by
state
state or
or federal
federal issuing stocks
statutes
statutes asas aa separate
separate • Limited liability for the
legal
legal entity.
entity. owners
J & M, Inc.
Disadvantages
• Double taxation
• More complexity
and regulations
Alternative
Alternative Forms
Forms of
of Business
Business Entities
Entities

AA business
business may may organize
organize
as
as an
an SS Corporation.
Corporation. The The
J & M, Inc. IRS
IRS allows
allows income
income toto 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 toto pay
pay
tax
tax onon the
the income.
income.
Alternative
Alternative Forms
Forms of
of Business
Business Entities
Entities
AA partnership
partnership isis an
an
association
association of
of two
two Advantages
or
or more
more individuals.
individuals. • More financial
resources than a
proprietorship
Joe and Marty’s
• Additional
management skills
Alternative
Alternative Forms
Forms of
of Business
Business Entities
Entities
AA partnership
partnership isis an
an
association
association of
of two
two Disadvantages
or
or more
more individuals.
individuals. • Limited life
• Unlimited liability
• Co-ownership of
Joe and Marty’s
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

AA partnership
partnership isis created
created
by
by aa contract,
contract, known
known asas
the
the partnership
partnership
agreement
agreement or or articles
articles of
of
partnership.
partnership.
Alternative
Alternative Forms
Forms of
of Business
Business Entities
Entities

AA 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 inin 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 Simple
Corporation Complex
Partnership Simple
LLC Moderate
Comparison
Comparison of
of Alternate
Alternate
Entity
Entity Characteristics
Characteristics
Legal
Legal Liability
Liability
Proprietorship No limitation
Corporation Limited liability
Partnership No limitation
LLC Limited liability
Comparison
Comparison of
of Alternate
Alternate
Entity
Entity Characteristics
Characteristics
Taxation
Taxation
Proprietorship Nontaxable entity
Corporation Taxable entity
Partnership Nontaxable entity
LLC 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 Yes
Corporation No
Partnership Yes
LLC Yes
Comparison
Comparison of
of Alternate
Alternate
Entity
Entity Characteristics
Characteristics
Ease
Ease of
of Raising
Raising Capital
Capital
Proprietorship Difficult
Corporation Easier
Partnership Moderate
LLC 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 inin 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 7 200 00
Accounts Receivable 16 300 00
Merchandise Inventory 28 700 00
Store Equipment 5 400 00
Office Equipment 1 500 00
Allowance for Doubtful Accounts 1 500 00
Accounts Payable 2 600 00
Joseph Stevens, Capital 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 7 200 00


Accounts Receivable 16 300 00
Merchandise Inventory 28 700 00
Store Equipment 5 400 00
Office Equipment 1 500 00
Allowance for Doubtful Accounts 1 500 00
Accounts Payable 2 600 00
Joseph Stevens, Member Equity 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 andand
Crystal
Crystal Mills
Mills provides
provides for
for Stone
Stone toto have
have an an annual
annual
salary
salary allowance
allowance ofof $30,000
$30,000 andand 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 onon January
January 1.1.
Any
Any netnet 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
J. Stone C. Mills Total
Salary allowance $30,000 $24,000 $54,000
Interest allowance 9,600 7,200 16,800
Remaining income 2,100 2,100 4,200
Division of net income $41,700
$80,000 x $33,300 $75,000
$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 asas before
before except
except that
that
the
the net
net income
income isis only
only $50,000.
$50,000.
J. Stone C. Mills Total
Salary allowance $30,000 $24,000 $54,000
Interest allowance 9,600 7,200 16,800
Total $39,600 $31,200 $70,800
Deduct excess equally 10,400 10,400 20,800
Division of net income $29,200 $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 andand Nathan
Nathan Bell
Bell
have
have capital
capital balances
balances ofof $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 inin cash.
cash.
Partnership
Partnership Dissolution
Dissolution
Purchasing
Purchasing an
an Interest
Interest in
in aa Partnership
Partnership

June 1 Tom Andrews, Capital 10 000 00


Nathan Bell, Capital 10 000 00
Joe Canter, Capital 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 byby
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 20 000 00
Sharon Nelson, Capital 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 ofof $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 ofof the
the
old
old partnership
partnership are are adjusted
adjusted toto aa fair
fair
market
market values
values andand the
the resulting
resulting capital
capital
balances
balances forfor Jenkins
Jenkins and
and Kramer
Kramer are are
$30,000
$30,000 andand $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. InIn return,
return, Diaz
Diaz
will
will receive
receive aa one-third
one-third equity
equity inin the
the
partnership
partnership andand will
will share
share income
income andand
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 $20,000
Equity of Kramer 24,000
Diaz’s Contribution 31,000
Total equity after admitting Diaz $75,000
Diaz’s interest (1/3 x $75,000) $25,000

Diaz’s contribution $31,000


Diaz’s equity after admission 25,000
Bonus paid to Jenkins and Kramer $ 6,000
Partnership
Partnership Dissolution
Dissolution
Partner
Partner Bonuses
Bonuses
Mar. 1 Cash 31 000 00
Alex Diaz, Capital 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 ofof Janice
Janice Cowen
Cowen isis
$580,000
$580,000 andand 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 andand Dodd
Dodd shared
shared netnet
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 $ 80,000
Equity of Dodd 40,000
Chua’s Contribution 30,000
Total equity after admitting Chua $150,000
Chua’s interest (1/4 x $150,000) $ 37,500

Chua’s contribution $30,000


Chua’s equity after admission 37,500
Bonus paid to Chua $ 7,500
Partnership
Partnership Dissolution
Dissolution
Partner
Partner Bonuses
Bonuses
Mar. 1 Cash 2/3 x 30 000 00
Janice Cowen, Capital $7,50
1/3 x 5 000 00
Steve Dodd, Capital 0
$7,50 2 500 00
Ellen Chua, Capital 0 37 500 00
Liquidating
Liquidating Partnerships
Partnerships
When
When aa partnership
partnership goes
goes out
out of
of
business,
business, thethe 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, andand 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 $11,000
Noncash Assets 64,000
Liabilities $ 9,000
Jean Farley, Capital 22,000
Brad Greene, Capital 22,000
Alice Hall, Capital 22,000
Total $75,000 $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
Balance before realization $11,000 $64,000 $9,000
Sale of assets and division
of gain +72,000 -64,000 —

Left side of statement


Liquidating
Liquidating Partnerships
Partnerships
Farley Greene Hall
Capital Capital Capital
Balance before realization $22,000 $22,000 $22,000
Sale of assets and division
of gain +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
Balance before realization$11,000 $64,000 $9,000
Sale of assets and division
of gain +72,000 –64,000 —
Balance after realization $83,000 $0 $9,000

Left side of statement


Liquidating
Liquidating Partnerships
Partnerships
Farley Greene Hall
Capital Capital Capital
Balance before realization$22,000 $22,000 $22,000
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
Balance before realization$11,000 $64,000 $9,000
Sale of assets and division
of gain +72,000 –64,000 —
Balance after realization $83,000 $ 0 $9,000
Payment of liabilities –9,000 — –9,000

Left side of statement


Liquidating
Liquidating Partnerships
Partnerships
Noncash
Cash Assets Liabilities
Balance before realization$11,000 $64,000 $9,000
Sale of assets and division
of gain +72,000 –64,000 —
Balance after realization $83,000 $ 0 $9,000
Payment of liabilities –9,000 — –9,000
Balance after payment $74,000 $ 0 $ 0

Left side of statement


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
Noncash
Cash Assets Liabilities
Balance before realization $11,000 $64,000 $9,000
Sale of assets and division
of gain +72,000 –64,000 —
Balance after realization $83,000 $ 0 $9,000
Payment of liabilities –9,000 — –9,000
Balance after payment $74,000 $ 0 $ 0
Partners’ cash distributed –74,000 — —
Final balances $ 0 $ 0 $ 0
Left side of statement
Liquidating
Liquidating Partnerships
Partnerships
Farley Greene Hall
Capital Capital Capital
Balance before realization$22,000 $22,000 $22,000
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 72 000 00


Noncash Assets 64 000 00
Gain on Realization 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 9 000 00


Cash 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
Balance before realization$11,000 $64,000 $9,000
Sale of assets and division
of loss +44,000 –64,000 —

Left side of statement


Liquidating
Liquidating Partnerships
Partnerships
Farley Greene Hall
Capital Capital Capital
Balance before realization $22,000 $22,000 $22,000
Sale of assets and division
of loss –10,000 –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
Balance before realization$11,000 $64,000 $9,000
Sale of assets and division
of loss +44,000 –64,000 —
Balance after realization $55,000 $0 $9,000

Left side of statement


Liquidating
Liquidating Partnerships
Partnerships
Farley Greene Hall
Capital Capital Capital
Balance before realization$22,000 $22,000 $22,000
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
Balance before realization$11,000 $64,000 $9,000
Sale of assets and division
of loss +44,000 –64,000 —
Balance after realization $55,000 $ 0 $9,000
Payment of liabilities –9,000 — –9,000

Left side of statement


Liquidating
Liquidating Partnerships
Partnerships
Noncash
Cash Assets Liabilities
Balance before realization$11,000 $64,000 $9,000
Sale of assets and division
of loss +44,000 –64,000 —
Balance after realization $55,000 $ 0 $9,000
Payment of liabilities –9,000 — –9,000
Balance after payment $46,000 $ 0 $ 0

Left side of statement


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
Noncash
Cash Assets Liabilities
Balance before realization $11,000 $64,000 $9,000
Sale of assets and division
of loss +44,000 –64,000 —
Balance after realization $55,000 $ 0 $9,000
Payment of liabilities –9,000 — –9,000
Balance after payment $46,000 $ 0 $ 0
Partners’ cash distributed –46,000 — —
Final balances $ 0 $ 0 $ 0
Left side of statement
Liquidating
Liquidating Partnerships
Partnerships
Farley Greene Hall
Capital Capital Capital
Balance before realization $22,000 $22,000 $22,000
Sale of assets and division
of loss –10,000 –6,000 –4,000
Balance after realization $12,000 $16,000 $18,000
Payment of liabilities — — —
Balance after payment $12,000 $16,000 $18,000
Partners’ cash distributed –12,000 –16,000 –18,000
Final balances $ 0 $ 0 $ 0
Right side of statement
Liquidating
Liquidating Partnerships
Partnerships
Sale
Sale of
of Assets
Assets

Apr. 30 Cash 44 000 00


Loss on Realization 20 000 00
Noncash Assets 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 9 000 00


Cash 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
Della’s Delights, Form easily: Jacobi forms a
Proprietorship business by obtaining a
local business license and
Jeff Jacobi, Proprietor opening a bank account.

Della’s Delights, Expand capital and


Partnership expertise: Jacobi admits a
Jacobi and Lange, new partner that contributes
Partners 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
Continued from the public.
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 oror firm
firm that
that
provides
provides equity
equity financing
financing
for
for aa new
new company.
company.
Chapter 13

The
The End
End