Partnerships and Limited Partnerships and Limited Liability CorporationsLiability Corporations
Accounting, 21st Edition
Warren Reeve Fess
PowerPoint Presentation by Douglas CloudProfessor Emeritus of AccountingPepperdine 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.
1. Describe the basic characteristics of proprietorships, corporations, partnerships, and limited liability corporation.
2. Describe and illustrate the equity reporting for proprietorships, corporations, partnerships, and limited liability corporations.
3. Describe and illustrate the accounting for forming a partnership.
ObjectivesObjectivesObjectivesObjectives
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
4. Describe and illustrate the accounting for dividing the net income and net loss of a partnership.
ObjectivesObjectivesObjectivesObjectives
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 Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAdvantages
• Ease in organizing• Low cost of
organizing
Disadvantages• Difficulty in raising
large amounts of capital
• Unlimited liability
Joe’s
Review of Chapter 1Review of Chapter 1
A proprietorship is owned by one individual.
A proprietorship is owned by one individual.
Alternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business Entities
A corporation is organized under state or federal
statutes as a separate legal entity.
A corporation is organized under state or federal
statutes as a separate legal entity.
Advantages• The ability to obtain large
amounts of resources by issuing stocks
• Limited liability for the owners
Disadvantages• Double taxation• More complexity
and regulations
J & M, Inc.
Alternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business Entities
J & M, Inc.
A business may organize as an S Corporation. The IRS allows income to pass through the S Corporation
to the individual stockholder without the
corporation having to pay tax on the income.
A business may organize as an S Corporation. The IRS allows income to pass through the S Corporation
to the individual stockholder without the
corporation having to pay tax on the income.
Alternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business Entities
A partnership is an association of two
or more individuals.
A partnership is an association of two
or more individuals.
Advantages• More financial
resources than a proprietorship
• Additional management skills
Joe and Marty’s
Alternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business Entities
Disadvantages• Limited life• Unlimited liability• Co-ownership of
partnership property• Mutual agency
Joe and Marty’s
A partnership is an association of two
or more individuals.
A partnership is an association of two
or more individuals.
Alternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business Entities
An important right of partners is to participate in
the income of the partnership.
An important right of partners is to participate in
the income of the partnership.
Alternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business Entities
Each partner must report their share of partnership income on their personal
tax returns.
Each partner must report their share of partnership income on their personal
tax returns.
Alternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business Entities
A partnership is created by a contract, known as
the partnership agreement or articles of
partnership.
A partnership is created by a contract, known as
the partnership agreement or articles of
partnership.
Alternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business Entities
A variant of the regular partnership
is a limited partnership.
A variant of the regular partnership
is a limited partnership.
This form of partnership allows partners that are
not involved in the operations of the
partnership to retain limited liability.
This form of partnership allows partners that are
not involved in the operations of the
partnership to retain limited liability.
Limited Liability CorporationsLimited Liability CorporationsLimited Liability CorporationsLimited Liability 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.
ContinuedContinued
Limited Liability CorporationsLimited Liability CorporationsLimited Liability CorporationsLimited Liability 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 of Alternate Entity Characteristics
Comparison of Alternate Entity Characteristics
Ease of FormationEase of Formation
Proprietorship Simple
Corporation Complex
Partnership Simple
LLC Moderate
Comparison of Alternate Entity Characteristics
Comparison of Alternate Entity Characteristics
Legal LiabilityLegal Liability
Proprietorship No limitation
Corporation Limited liability
Partnership No limitation
LLC Limited liability
Comparison of Alternate Entity Characteristics
Comparison of Alternate Entity Characteristics
TaxationTaxation
Proprietorship Nontaxable entity
Corporation Taxable entity
Partnership Nontaxable entity
LLC Nontaxable entity by election
Comparison of Alternate Entity Characteristics
Comparison of Alternate Entity Characteristics
Limitation on Life of EntityLimitation on Life of Entity
Proprietorship Yes
Corporation No
Partnership Yes
LLC Yes
Comparison of Alternate Entity Characteristics
Comparison of Alternate Entity Characteristics
Ease of Raising CapitalEase of Raising Capital
Proprietorship Difficult
Corporation Easier
Partnership Moderate
LLC Moderate
Equity Reporting for Equity Reporting for Alternative Entity FormsAlternative Entity Forms
Equity Reporting for Equity Reporting for Alternative Entity FormsAlternative Entity Forms
ProprietorshipsProprietorships
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 Reporting for Equity Reporting for Alternative Entity FormsAlternative Entity Forms
Equity Reporting for Equity Reporting for Alternative Entity FormsAlternative Entity Forms
ProprietorshipsProprietorships
Greene LandscapesStatement of Owner’s Equity
For the year ended December 31, 2006Duncan Greene, capital, Dec. 31, 2005 $345,000Net income $79,000Less withdrawals 35,000Increase in owner’s equity 44,000Duncan Greene, capital, Dec. 31, 2006 $389,000
Equity Reporting for Equity Reporting for Alternative Entity FormsAlternative Entity Forms
Equity Reporting for Equity Reporting for Alternative Entity FormsAlternative Entity Forms
CorporationsCorporations
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 Reporting for Equity Reporting for Alternative Entity FormsAlternative Entity Forms
Equity Reporting for Equity Reporting for Alternative Entity FormsAlternative Entity Forms
CorporationsCorporations
Equity Reporting for Equity Reporting for Alternative Entity FormsAlternative Entity Forms
Equity Reporting for Equity Reporting for Alternative Entity FormsAlternative Entity Forms
Partnerships and Limited Liability CorporationsPartnerships and Limited Liability 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 Reporting for Alternative Equity Reporting for Alternative Entity FormsEntity Forms
Equity Reporting for Alternative Equity Reporting for Alternative Entity FormsEntity Forms
PartnershipsPartnerships
Forming a PartnershipForming a Partnership Forming a PartnershipForming a Partnership
Joseph Stevens and Earl Foster agree to combine their hardware businesses in a partnership. They
agree that the partnership is to assume the liabilities of the separate businesses.
Joseph Stevens and Earl Foster agree to combine their hardware businesses in a partnership. They
agree that the partnership is to assume the liabilities of the separate businesses.
Apr. 1 Cash 7 200 00Accounts Receivable 16 300 00 Merchandise Inventory 28 700 00 Store Equipment 5 400 00Office Equipment 1 500 00
Allowance for Doubtful Accounts1 500 00Accounts Payable2 600 00Joseph Stevens, Capital55 000 00
Stevens’ Transfer of Assets, Liability, and Equity
Forming a PartnershipForming a Partnership Forming a PartnershipForming a Partnership
A similar entry would be made for the assets, liabilities, and
equity of Earl Foster.
A similar entry would be made for the assets, liabilities, and
equity of Earl Foster.
Forming a PartnershipForming a Partnership Forming a PartnershipForming a Partnership
Assume that instead of forming a partnership, the two men formed a limited liability corporation.
Assume that instead of forming a partnership, the two men formed a limited liability corporation.
Apr. 1 Cash 7 200 00Accounts Receivable 16 300 00
Merchandise Inventory 28 700 00Store Equipment 5 400 00Office Equipment 1 500 00
Allowance for Doubtful Accounts1 500 00Accounts Payable2 600 00Joseph Stevens, Member Equity55 000 00
Stevens’ Transfer of Assets, Liability, and Equity
Dividing IncomeDividing Income Dividing IncomeDividing Income
Services of PartnersServices of Partners
The partnership agreement of Jennifer Stone and Crystal Mills provides for Stone to have an annual salary allowance of $30,000 and Mills is to receive $24,000. Any net income is to be divided equally.
The firm had a net income of $75,000.
The partnership agreement of Jennifer Stone and Crystal Mills provides for Stone to have an annual salary allowance of $30,000 and Mills is to receive $24,000. Any net income is to be divided equally.
The firm had a net income of $75,000.
J. Stone C. Mills TotalSalary allowance $30,000 $24,000 $54,000Remaining income 10,500 10,500 21,000Division of net income $40,500 $34,500 $75,000
Dividing IncomeDividing Income Dividing IncomeDividing Income
Services of PartnersServices of Partners
Dec. 31 Income Summary 75 000 00
Jennifer Stone, Capital40 500 00
Crystal Mills, Capital 34 500 00
Dividing IncomeDividing Income Dividing IncomeDividing Income
LLC AlternativeLLC Alternative
Dec. 31 Income Summary 75 000 00
Jennifer Stone, Member Equity40 500 00
Crystal Mills, Member Equity 34 500 00
Dividing IncomeDividing Income Dividing IncomeDividing Income
Services of Partners and InvestmentsServices of Partners and Investments
The partnership agreement of Jennifer Stone and Crystal Mills provides for Stone to have an
annual salary allowance of $30,000 and Mills is to receive $24,000. Interest of 12% is provided on each partner’s capital balance on January 1. Any net income is to be divided equally. The
firm had a net income of $75,000.
The partnership agreement of Jennifer Stone and Crystal Mills provides for Stone to have an
annual salary allowance of $30,000 and Mills is to receive $24,000. Interest of 12% is provided on each partner’s capital balance on January 1. Any net income is to be divided equally. The
firm had a net income of $75,000.
Dividing IncomeDividing Income Dividing IncomeDividing Income
Services of Partners and InvestmentsServices of Partners and Investments
J. Stone C. Mills TotalSalary allowance $30,000 $24,000 $54,000Interest allowance 9,600 7,200 16,800
Division of net income $41,700 $33,300 $75,000$80,000 x
12%
$80,000 x 12%
$60,000 x 12%
$60,000 x 12%
Remaining income 2,100 2,100 4,200
Dividing IncomeDividing Income Dividing IncomeDividing Income
Services of PartnersServices of Partners
Dec. 31 Income Summary 75 000 00
Jennifer Stone, Capital41 700 00
Crystal Mills, Capital 33 300 00
Dividing IncomeDividing Income Dividing IncomeDividing Income
LLC AlternativeLLC Alternative
Dec. 31 Income Summary 75 000 00
Jennifer Stone, Member Equity41 700 00
Crystal Mills, Member Equity 33 300 00
Dividing IncomeDividing Income Dividing IncomeDividing Income
Allowances Exceed Net IncomeAllowances Exceed Net Income
Assume the same facts as before except that the net income is only $50,000.
Assume the same facts as before except that the net income is only $50,000.
J. Stone C. Mills TotalSalary allowance $30,000 $24,000 $54,000Interest allowance 9,600 7,200 16,800 Total $39,600 $31,200 $70,800
Division of net income $29,200 $20,800 $50,000Deduct excess equally 10,400 10,400 20,800
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Admitting a PartnerAdmitting a Partner
1. Purchasing an interest from one or more of the current partners.
2. Contributing assets to the partnership.
A person may be admitted to a partnership only with the consent of all partners by:
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Purchasing an Interest in a PartnershipPurchasing an Interest in a Partnership
Partners Tom Andrews and Nathan Bell have capital balances of $50,000 each.
On June 1, each sells one-fifth of his equity to Joe Canter for $10,000 in cash.
Partners Tom Andrews and Nathan Bell have capital balances of $50,000 each.
On June 1, each sells one-fifth of his equity to Joe Canter for $10,000 in cash.
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Purchasing an Interest in a PartnershipPurchasing an Interest in a Partnership
June 1 Tom Andrews, Capital 10 000 00
Nathan Bell, Capital 10 000 00
Joe Canter, Capital20 000 00
For a LLC, members’ equity accounts would have been used rather than capital accounts.
For a LLC, members’ equity accounts would have been used rather than capital accounts.
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Contributing Assets to a PartnershipContributing Assets to a Partnership
Partners Donald Lewis and Gerald Morton have capital balances of $35,000 and
$25,000, respectively. On June 1, Sharon Nelson joins the partnership by
permission and makes an investment of $20,000 cash.
Partners Donald Lewis and Gerald Morton have capital balances of $35,000 and
$25,000, respectively. On June 1, Sharon Nelson joins the partnership by
permission and makes an investment of $20,000 cash.
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Contributing Assets to a PartnershipContributing Assets to a Partnership
June 1 Cash 20 000 00
Sharon Nelson, Capital20 000 00
For a LLC, Sharon Nelson, Member Equity would have been credited.
For a LLC, Sharon Nelson, Member Equity would have been credited.
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Revaluation of AssetsRevaluation of Assets
Partners Donald Lewis and Gerald Morton have capital balances of $35,000 and $25,000, respectively. The balance in
Merchandise Inventory is $14,000 and the current replacement value is $17,000.
The partners share net income equally.
Partners Donald Lewis and Gerald Morton have capital balances of $35,000 and $25,000, respectively. The balance in
Merchandise Inventory is $14,000 and the current replacement value is $17,000.
The partners share net income equally.
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
June 1 Merchandise Inventory 3 000 00
Donald Lewis, Capital1 500 00
Gerald Morton, Capital1 500 00
Because the LLC alternative follows a pattern of replacing “Capital” with “Member Equity,”
the LLC entry will not be shown again.
Because the LLC alternative follows a pattern of replacing “Capital” with “Member Equity,”
the LLC entry will not be shown again.
Revaluation of AssetsRevaluation of Assets
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner BonusesPartner Bonuses
On March 1, the partnership of Marsha Jenkins and Helen Kramer admit Alex
Diaz as a new partner. The assets of the old partnership are adjusted to a fair
market values and the resulting capital balances for Jenkins and Kramer are $20,000 and $24,000, respectively.
On March 1, the partnership of Marsha Jenkins and Helen Kramer admit Alex
Diaz as a new partner. The assets of the old partnership are adjusted to a fair
market values and the resulting capital balances for Jenkins and Kramer are $20,000 and $24,000, respectively.
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner BonusesPartner Bonuses
Jenkins and Kramer agree to admit Diaz as a partner for $31,000. In return, Diaz
will receive a one-third equity in the partnership and will share income and
losses equally with Jenkins and Kramer.
Jenkins and Kramer agree to admit Diaz as a partner for $31,000. In return, Diaz
will receive a one-third equity in the partnership and will share income and
losses equally with Jenkins and Kramer.
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner Bonuses from New PartnerPartner Bonuses from New Partner
Equity of Jenkins $20,000Equity of Kramer 24,000Diaz’s Contribution 31,000Total equity after admitting Diaz $75,000Diaz’s interest (1/3 x $75,000) $25,000
Diaz’s contribution $31,000Diaz’s equity after admission 25,000Bonus paid to Jenkins and Kramer $ 6,000
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner BonusesPartner Bonuses
Mar. 1 Cash 31 000 00
Alex Diaz, Capital25 000 00
Marsha Jenkins, Capital3 000 00
Helen Kramer, Capital3 000 00 $6000 ÷ 2
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner BonusesPartner Bonuses
After adjusting the market values, the capital balance of Janice Cowen is
$80,000 and the capital balance of Steve Dodd is $40,000. Ellen Chua receives a
one-fourth interest in the partnership for a contribution of $30,000. Before admitting
Chua, Cowen and Dodd shared net income using a 2 to 1 ratio.
After adjusting the market values, the capital balance of Janice Cowen is
$80,000 and the capital balance of Steve Dodd is $40,000. Ellen Chua receives a
one-fourth interest in the partnership for a contribution of $30,000. Before admitting
Chua, Cowen and Dodd shared net income using a 2 to 1 ratio.
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner Bonuses to New PartnerPartner Bonuses to New Partner
Equity of Cowen $ 80,000Equity of Dodd 40,000Chua’s Contribution 30,000Total equity after admitting Chua $150,000Chua’s interest (1/4 x $150,000) $ 37,500
Chua’s contribution $30,000Chua’s equity after admission 37,500Bonus paid to Chua $ 7,500
Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner BonusesPartner Bonuses
Mar. 1 Cash 30 000 00
Janice Cowen, Capital 5 000 00
Steve Dodd, Capital 2 500 00
Ellen Chua, Capital37 500 00
1/3 x $7,50
0
2/3 x $7,50
0
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
When a partnership goes out of business, the winding-up
process is called the liquidation of a partnership.
When a partnership goes out of business, the winding-up
process is called the liquidation of a partnership.
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
The sale of the assets is called realization.
The sale of the assets is called realization.
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Farley, Greene, and Hall share income and losses in a ratio of 5:3:2. On April 9, after discontinuing
operations, the firm had the following trial balance.
Farley, Greene, and Hall share income and losses in a ratio of 5:3:2. On April 9, after discontinuing
operations, the firm had the following trial balance.
Cash $11,000Noncash Assets 64,000Liabilities $ 9,000Jean Farley, Capital 22,000Brad Greene, Capital 22,000Alice Hall, Capital 22,000 Total $75,000 $75,000
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Between April 10 and April 30, 2006, Farley, Greene, and Hall sell all
noncash assets for $72,000.
Between April 10 and April 30, 2006, Farley, Greene, and Hall sell all
noncash assets for $72,000.
Gain on RealizationGain on Realization
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $11,000 $64,000 $9,000
Left side of statement
Noncash Cash Assets Liabilities
Sale of assets and divisionof gain +72,000 -64,000 —
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $22,000 $22,000 $22,000
Right side of statement
Farley Greene Hall Capital Capital Capital
Sale of assets and divisionof gain +4,000 +2,400 +1,600
$8,000 gain x .50
$8,000 gain x .50
$8,000 gain x .30
$8,000 gain x .30
$8,000 gain x .20
$8,000 gain x .20
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $11,000 $64,000 $9,000
Left side of statement
Noncash Cash Assets Liabilities
Sale of assets and divisionof gain +72,000 –64,000 —
Balance after realization $83,000 $0 $9,000
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $22,000 $22,000 $22,000
Right side of statement
Farley Greene Hall Capital Capital Capital
Sale of assets and divisionof gain +4,000 +2,400 +1,600
Balance after realization $26,000 $24,400 $23,600
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
The partnership’s liabilities are paid, $9,000.
The partnership’s liabilities are paid, $9,000.
Gain on RealizationGain on Realization
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
Noncash Cash Assets Liabilities
Balance before realization $11,000 $64,000 $9,000Sale of assets and division
of gain +72,000 –64,000 —Balance after realization $83,000 $ 0 $9,000Payment of liabilities –9,000 — –9,000
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
Noncash Cash Assets Liabilities
Balance before realization $11,000 $64,000 $9,000Sale of assets and division
of gain +72,000 –64,000 —Balance after realization $83,000 $ 0 $9,000Payment of liabilities –9,000 — –9,000Balance after payment $74,000 $ 0 $ 0
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
The remaining cash, $74,000, is paid to each partner in
accordance with the partner’s capital balance.
The remaining cash, $74,000, is paid to each partner in
accordance with the partner’s capital balance.
Gain on RealizationGain on Realization
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
Noncash Cash Assets Liabilities
Balance before realization $11,000 $64,000 $9,000Sale of assets and division
of gain +72,000 –64,000 —Balance after realization $83,000 $ 0 $9,000Payment of liabilities –9,000 — –9,000Balance after payment $74,000 $ 0 $ 0Partners’ cash distributed –74,000 — —Final balances $ 0 $ 0 $ 0
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Right side of statement
Balance before realization $22,000 $22,000 $22,000
Farley Greene Hall Capital Capital Capital
Sale of assets and divisionof gain +4,000 +2,400 +1,600
Balance after realization $26,000 $24,400 $23,600Payment of liabilities — — —Balance after payment $26,000 $24,400 $23,600Partners’ cash distributed –26,000 –24,400 –23,600Final balances $ 0 $ 0 $ 0
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Sale of AssetsSale of Assets
Apr. 30 Cash 72 000 00
Noncash Assets64 000 00
Gain on Realization8 000 00
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Division of GainDivision of Gain
Apr. 30 Gain on Realization 8 000 00
Jean Farley, Capital4 000 00
Brad Greene, Capital2 400 00
Alice Hall, Capital1 600 00
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Payment of LiabilitiesPayment of Liabilities
Apr. 30 Liabilities 9 000 00
Cash 9 000 00
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Distribution of Cash to PartnersDistribution of Cash to 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 PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Between April 10 and April 30, 2006, Farley, Greene, and Hall sell all
noncash assets for $44,000.
Between April 10 and April 30, 2006, Farley, Greene, and Hall sell all
noncash assets for $44,000.
Loss on RealizationLoss on RealizationLoss on RealizationLoss on Realization
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $11,000 $64,000 $9,000
Left side of statement
Noncash Cash Assets Liabilities
Sale of assets and divisionof loss +44,000 –64,000 —
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $22,000 $22,000 $22,000
Right side of statement
Farley Greene Hall Capital Capital Capital
Sale of assets and divisionof loss –10,000 –6,000 –4,000
$20,000 loss x .50
$20,000 loss x .50
$20,000 loss x .30
$20,000 loss x .30
$20,000 loss x .20
$20,000 loss x .20
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $11,000 $64,000 $9,000
Left side of statement
Noncash Cash Assets Liabilities
Sale of assets and divisionof loss +44,000 –64,000 —
Balance after realization $55,000 $0 $9,000
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $22,000 $22,000 $22,000
Right side of statement
Farley Greene Hall Capital Capital Capital
Sale of assets and divisionof loss –10,000 –6,000 –4,000
Balance after realization $12,000 $16,000 $18,000
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
The liabilities of the partnership are paid, $9,000.
The liabilities of the partnership are paid, $9,000.
Loss on RealizationLoss on RealizationLoss on RealizationLoss on Realization
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
Noncash Cash Assets Liabilities
Balance before realization $11,000 $64,000 $9,000Sale of assets and division
of loss +44,000 –64,000 —Balance after realization $55,000 $ 0 $9,000Payment of liabilities –9,000 — –9,000
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
Noncash Cash Assets Liabilities
Balance before realization $11,000 $64,000 $9,000Sale of assets and division
of loss +44,000 –64,000 —Balance after realization $55,000 $ 0 $9,000Payment of liabilities –9,000 — –9,000Balance after payment $46,000 $ 0 $ 0
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
The remaining cash, $46,000, is paid to each partner in
accordance with the partner’s capital balance.
The remaining cash, $46,000, is paid to each partner in
accordance with the partner’s capital balance.
Loss on RealizationLoss on RealizationLoss on RealizationLoss on Realization
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
Noncash Cash Assets Liabilities
Balance before realization $11,000 $64,000 $9,000Sale of assets and division
of loss +44,000 –64,000 —Balance after realization $55,000 $ 0 $9,000Payment of liabilities –9,000 — –9,000Balance after payment $46,000 $ 0 $ 0Partners’ cash distributed –46,000 — —Final balances $ 0 $ 0 $ 0
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Right side of statement
Balance before realization $22,000 $22,000 $22,000
Farley Greene Hall Capital Capital Capital
Sale of assets and divisionof loss –10,000 –6,000 –4,000
Balance after realization $12,000 $16,000 $18,000Payment of liabilities — — —Balance after payment $12,000 $16,000 $18,000Partners’ cash distributed –12,000 –16,000 –18,000Final balances $ 0 $ 0 $ 0
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Sale of AssetsSale of Assets
Apr. 30 Cash 44 000 00
Loss on Realization 20 000 00
Noncash Assets64 000 00
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Division of LossDivision of Loss
Brad Greene, Capital 6 000 00
Alice Hall, Capital 4 000 00
Loss on Realization20 000 00
Apr. 30 Jean Farley, Capital 10 000 00
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Payment of LiabilitiesPayment of Liabilities
Apr. 30 Liabilities 9 000 00
Cash 9 000 00
Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Distribution to PartnersDistribution to 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 of a BusinessLifecycle of a BusinessLifecycle of a BusinessLifecycle of a BusinessBusiness Stage Principal Advantage
Della’s Delights, Proprietorship
Jeff Jacobi, Proprietor
Form easily: Jacobi forms a business by obtaining a local business license and 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 of a BusinessLifecycle of a BusinessLifecycle of a BusinessLifecycle of a BusinessBusiness 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 of a BusinessLifecycle of a BusinessLifecycle of a BusinessLifecycle of a BusinessBusiness Stage Principal Advantage
Della’s Delights, Inc. a division of International Foods, Inc.
Provide exit: The company is sold for cash.
A venture capitalist is an individual or firm that
provides equity financing for a new company.
A venture capitalist is an individual or firm that
provides equity financing for a new company.
The EndThe End
Chapter 13Chapter 13
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