Chapter 13

Partnerships and Limited Liability Corporations
Accounting, 21st Edition
Warren Reeve Fess
© 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.

PowerPoint Presentation by Douglas Cloud
Professor Emeritus of Accounting Pepperdine University

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Objectives Objectives
1. Describe the basic characteristics of After studying this proprietorships, corporations, partnerships, After studying this and limitedchapter, corporation. liability you should chapter, you should 2. Describe and illustrate to: equity reporting be able the 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 Forms of Business Entities Alternative Forms of Business Entities
Advantages
A proprietorship is A proprietorship is owned by one owned by one individual. individual.
Joe’s

• Ease in organizing • Low cost of organizing Disadvantages • Difficulty in raising large amounts of capital • Unlimited liability

Review of Chapter 1 Review of Chapter 1

Alternative Forms of Business Entities Alternative Forms of Business Entities
A corporation is A corporation is organized under organized under state or federal state or federal statutes as a separate statutes as a separate legal entity. legal 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 Forms of Business Entities Alternative Forms of Business Entities
A business may organize A business may organize as an S Corporation. The as an S Corporation. The IRS allows income to pass IRS allows income to pass through the S Corporation through the S Corporation to the individual to the individual stockholder without the stockholder without the corporation having to pay corporation having to pay tax on the income. tax on the income.

J & M, Inc.

Alternative Forms of Business Entities Alternative Forms of Business Entities
A partnership is an A partnership is an association of two association of two or more individuals. or more individuals. Advantages • More financial resources than a proprietorship • Additional management skills

Joe and Marty’s

Alternative Forms of Business Entities Alternative Forms of Business Entities
A partnership is an A partnership is an association of two association of two or more individuals. or more individuals. Disadvantages Limited life Unlimited liability Co-ownership of partnership property Mutual agency

Joe and Marty’s

• • • •

Alternative Forms of Business Entities Alternative Forms of Business Entities
An important right of An important right of partners is to participate in partners is to participate in the income of the the income of the partnership. partnership.

Alternative Forms of Business Entities Alternative Forms of Business Entities
Each partner must Each partner must report their share of report their share of partnership income partnership income on their personal on their personal tax returns. tax returns.

Alternative Forms of Business Entities Alternative Forms of Business Entities
A partnership is created A partnership is created by a contract, known as by a contract, known as the partnership the partnership agreement or articles of agreement or articles of partnership. partnership.

Alternative Forms of Business Entities Alternative Forms of Business Entities
A variant of the A variant of the regular partnership regular partnership is a limited is a limited This form of partnership This form of partnership partnership. partnership. allows partners that are allows partners that are not involved in the not involved in the operations of the operations of the partnership to retain partnership to retain limited liability. limited liability.

Limited Liability Corporations Limited 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.
Continued Continued

Limited Liability Corporations Limited 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 Comparison of Alternate Entity Characteristics Entity Characteristics
Ease of Formation Ease of Formation Proprietorship Corporation Partnership LLC Simple Complex Simple Moderate

Comparison of Alternate Comparison of Alternate Entity Characteristics Entity Characteristics
Legal Liability Legal Liability Proprietorship Corporation Partnership LLC No limitation Limited liability No limitation Limited liability

Comparison of Alternate Comparison of Alternate Entity Characteristics Entity Characteristics
Taxation Taxation Proprietorship Corporation Partnership LLC Nontaxable entity Taxable entity Nontaxable entity Nontaxable entity by election

Comparison of Alternate Comparison of Alternate Entity Characteristics Entity Characteristics
Limitation on Life of Entity Limitation on Life of Entity Proprietorship Corporation Partnership LLC Yes No Yes Yes

Comparison of Alternate Comparison of Alternate Entity Characteristics Entity Characteristics
Ease of Raising Capital Ease of Raising Capital Proprietorship Corporation Partnership LLC Difficult Easier Moderate Moderate

Equity Reporting for Equity Reporting for Alternative Entity Forms Alternative Entity 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 Reporting for Equity Reporting for Alternative Entity Forms Alternative Entity 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 Reporting for Equity Reporting for Alternative Entity Forms Alternative Entity 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 Reporting for Equity Reporting for Alternative Entity Forms Alternative Entity Forms
Corporations Corporations

Equity Reporting for Equity Reporting for Alternative Entity Forms Alternative Entity Forms
Partnerships and Limited Liability Corporations Partnerships 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 Forms Entity Forms
Partnerships Partnerships

Forming a Partnership Forming a Partnership
Joseph Stevens and Earl Foster agree to combine Joseph Stevens and Earl Foster agree to combine their hardware businesses in a partnership. They their hardware businesses in a partnership. They agree that the partnership is to assume the agree that the partnership is to assume the liabilities of the separate businesses. liabilities of the separate 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 a Partnership Forming a Partnership
A similar entry would be made A similar entry would be made for the assets, liabilities, and for the assets, liabilities, and equity of Earl Foster. equity of Earl Foster.

Forming a Partnership Forming a Partnership
Assume that instead of forming a partnership, the Assume that instead of forming a partnership, the two men formed a limited liability corporation. two men formed a limited liability 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 Income Dividing Income
Services of Partners Services of Partners
The partnership agreement of Jennifer Stone and The partnership agreement of Jennifer Stone and Crystal Mills provides for Stone to have an annual Crystal Mills provides for Stone to have an annual salary allowance of $30,000 and Mills is to receive salary allowance of $30,000 and Mills is to receive $24,000. Any net income is to be divided equally. $24,000. Any net income is to be divided equally. The firm had a net income of $75,000. The firm had a net income of $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 Income Dividing Income
Services of Partners Services of Partners
Dec. 31 Income Summary Jennifer Stone, Capital Crystal Mills, Capital 75 000 00 40 500 00 34 500 00

Dividing Income Dividing Income
LLC Alternative LLC Alternative
Dec. 31 Income Summary Jennifer Stone, Member Equity Crystal Mills, Member Equity 75 000 00 40 500 00 34 500 00

Dividing Income Dividing Income
Services of Partners and Investments Services of Partners and Investments The partnership agreement of Jennifer Stone and The partnership agreement of Jennifer Stone and Crystal Mills provides for Stone to have an Crystal Mills provides for Stone to have an annual salary allowance of $30,000 and Mills is annual salary allowance of $30,000 and Mills is to receive $24,000. Interest of 12% is provided to receive $24,000. Interest of 12% is provided on each partner’s capital balance on January 1. on each partner’s capital balance on January 1. Any net income is to be divided equally. The Any net income is to be divided equally. The firm had a net income of $75,000. firm had a net income of $75,000.

Dividing Income Dividing Income
Services of Partners and Investments Services of Partners and 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 x $60,000 x $75,000 $80,000 x $33,300 x $80,000 $60,000 12% 12% 12% 12%

Dividing Income Dividing Income
Services of Partners Services of Partners
Dec. 31 Income Summary Jennifer Stone, Capital Crystal Mills, Capital 75 000 00 41 700 00 33 300 00

Dividing Income Dividing Income
LLC Alternative LLC Alternative
Dec. 31 Income Summary Jennifer Stone, Member Equity Crystal Mills, Member Equity 75 000 00 41 700 00 33 300 00

Dividing Income Dividing Income
Allowances Exceed Net Income Allowances Exceed Net Income Assume the same facts as before except that Assume the same facts as before except that the net income is only $50,000. the net income is only $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 Dissolution Partnership Dissolution
Admitting a Partner Admitting a 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 Dissolution Partnership Dissolution
Purchasing an Interest in a Partnership Purchasing an Interest in a Partnership Partners Tom Andrews and Nathan Bell Partners Tom Andrews and Nathan Bell have capital balances of $50,000 each. have capital balances of $50,000 each. On June 1, each sells one-fifth of his On June 1, each sells one-fifth of his equity to Joe Canter for $10,000 in cash. equity to Joe Canter for $10,000 in cash.

Partnership Dissolution Partnership Dissolution
Purchasing an Interest in a Partnership Purchasing an Interest in a Partnership
June 1 Tom Andrews, Capital Nathan Bell, Capital Joe Canter, Capital 10 000 00 10 000 00 20 000 00

For a LLC, members’ equity accounts would For a LLC, members’ equity accounts would have been used rather than capital accounts. have been used rather than capital accounts.

Partnership Dissolution Partnership Dissolution
Contributing Assets to a Partnership Contributing Assets to a Partnership Partners Donald Lewis and Gerald Morton Partners Donald Lewis and Gerald Morton have capital balances of $35,000 and have capital balances of $35,000 and $25,000, respectively. On June 1, Sharon $25,000, respectively. On June 1, Sharon Nelson joins the partnership by Nelson joins the partnership by permission and makes an investment of permission and makes an investment of $20,000 cash. $20,000 cash.

Partnership Dissolution Partnership Dissolution
Contributing Assets to a Partnership Contributing Assets to a Partnership
June 1 Cash Sharon Nelson, Capital 20 000 00 20 000 00

For a LLC, Sharon Nelson, Member Equity For a LLC, Sharon Nelson, Member Equity would have been credited. would have been credited.

Partnership Dissolution Partnership Dissolution
Revaluation of Assets Revaluation of Assets Partners Donald Lewis and Gerald Morton Partners Donald Lewis and Gerald Morton have capital balances of $35,000 and have capital balances of $35,000 and $25,000, respectively. The balance in $25,000, respectively. The balance in Merchandise Inventory is $14,000 and Merchandise Inventory is $14,000 and the current replacement value is $17,000. the current replacement value is $17,000. The partners share net income equally. The partners share net income equally.

Partnership Dissolution Partnership Dissolution
Revaluation of Assets Revaluation of Assets
June 1 Merchandise Inventory Donald Lewis, Capital Gerald Morton, Capital 3 000 00 1 500 00 1 500 00

Because the LLC alternative follows a pattern Because the LLC alternative follows a pattern of replacing “Capital” with “Member Equity,” of replacing “Capital” with “Member Equity,” the LLC entry will not be shown again. the LLC entry will not be shown again.

Partnership Dissolution Partnership Dissolution
Partner Bonuses Partner Bonuses On March 1, the partnership of Marsha On March 1, the partnership of Marsha Jenkins and Helen Kramer admit Alex Jenkins and Helen Kramer admit Alex Diaz as a new partner. The assets of the Diaz as a new partner. The assets of the old partnership are adjusted to a fair old partnership are adjusted to a fair market values and the resulting capital market values and the resulting capital balances for Jenkins and Kramer are balances for Jenkins and Kramer are $30,000 and $24,000, respectively. $30,000 and $24,000, respectively.

Partnership Dissolution Partnership Dissolution
Partner Bonuses Partner Bonuses Jenkins and Kramer agree to admit Diaz Jenkins and Kramer agree to admit Diaz as a partner for $31,000. In return, Diaz as a partner for $31,000. In return, Diaz will receive a one-third equity in the will receive a one-third equity in the partnership and will share income and partnership and will share income and losses equally with Jenkins and Kramer. losses equally with Jenkins and Kramer.

Partnership Dissolution Partnership Dissolution
Partner Bonuses from New Partner Partner Bonuses from New Partner
Equity of Jenkins Equity of Kramer Diaz’s Contribution Total equity after admitting Diaz Diaz’s interest (1/3 x $75,000) Diaz’s contribution Diaz’s equity after admission Bonus paid to Jenkins and Kramer $20,000 24,000 31,000 $75,000 $25,000 $31,000 25,000 $ 6,000

Partnership Dissolution Partnership Dissolution
Partner Bonuses Partner Bonuses
Mar. 1 Cash Alex Diaz, Capital Marsha Jenkins, Capital Helen Kramer, Capital 31 000 00 25 000 00 3 000 00 3 000 00

$6000 ÷ 2

Partnership Dissolution Partnership Dissolution
Partner Bonuses Partner Bonuses After adjusting the market values, the After adjusting the market values, the capital balance of Janice Cowen is capital balance of Janice Cowen is $580,000 and the capital balance of Steve $580,000 and the capital balance of Steve Dodd is $40,000. Ellen Chua receives a Dodd is $40,000. Ellen Chua receives a one-fourth interest in the partnership for a one-fourth interest in the partnership for a contribution of $30,000. Before admitting contribution of $30,000. Before admitting Chua, Cowen and Dodd shared net Chua, Cowen and Dodd shared net income using a 2 to 1 ratio. income using a 2 to 1 ratio.

Partnership Dissolution Partnership Dissolution
Partner Bonuses to New Partner Partner Bonuses to New 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 Dissolution Partnership Dissolution
Partner Bonuses Partner 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 Partnerships Liquidating Partnerships
When a partnership goes out of When a partnership goes out of business, the winding-up business, the winding-up process is called the liquidation process is called the liquidation of a partnership. of a partnership.

Liquidating Partnerships Liquidating Partnerships
The sale of the assets is The sale of the assets is called realization. called realization.

Liquidating Partnerships Liquidating Partnerships
Farley, Greene, and Hall share income and losses in Farley, Greene, and Hall share income and losses in a ratio of 5:3:2. On April 9, after discontinuing a ratio of 5:3:2. On April 9, after discontinuing operations, the firm had the following trial balance. operations, the firm had the following trial balance.
Cash Noncash Assets Liabilities Jean Farley, Capital Brad Greene, Capital Alice Hall, Capital Total $11,000 64,000 $ 9,000 22,000 22,000 22,000 $75,000

$75,000

Liquidating Partnerships Liquidating Partnerships
Gain on Realization Gain on Realization Between April 10 and April 30, 2006, Between April 10 and April 30, 2006, Farley, Greene, and Hall sell all Farley, Greene, and Hall sell all noncash assets for $72,000. noncash assets for $72,000.

Liquidating Partnerships Liquidating Partnerships
Balance before realization Sale of assets and division of gain +72,000 Noncash Cash Assets Liabilities $11,000 $64,000 $9,000 -64,000 —

Left side of statement

Liquidating Partnerships Liquidating Partnerships
Balance before realization Sale of assets and division of gain Farley Capital $22,000 +4,000 Greene Hall Capital Capital $22,000 $22,000 +2,400 +1,600

$8,000 $8,000 $8,000 $8,000 $8,000 $8,000 gain x .50 gain x .30 gain x .20 gain x .50 gain x .30 gain x .20

Right side of statement

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

Left side of statement

Liquidating Partnerships Liquidating Partnerships
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 Farley Capital $22,000 Greene Hall Capital Capital $22,000 $22,000

Right side of statement

Liquidating Partnerships Liquidating Partnerships
Gain on Realization Gain on Realization The partnership’s liabilities are The partnership’s liabilities are paid, $9,000. paid, $9,000.

Liquidating Partnerships Liquidating Partnerships
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 — Noncash Cash Assets Liabilities $11,000 $64,000 $9,000 — $9,000 –9,000

Left side of statement

Liquidating Partnerships Liquidating Partnerships
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 Noncash Cash Assets Liabilities $11,000 $64,000 $9,000 — $9,000 –9,000 $ 0

Left side of statement

Liquidating Partnerships Liquidating Partnerships
Gain on Realization Gain on Realization The remaining cash, $74,000, The remaining cash, $74,000, is paid to each partner in is paid to each partner in accordance with the partner’s accordance with the partner’s capital balance. capital balance.

Liquidating Partnerships Liquidating 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 — $9,000 –9,000 $ 0 — $ 0

Left side of statement

Liquidating Partnerships Liquidating Partnerships
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 Farley Capital $22,000 Greene Hall Capital Capital $22,000 $22,000

Liquidating Partnerships Liquidating Partnerships
Sale of Assets Sale of Assets
Apr. 30 Cash Noncash Assets Gain on Realization 72 000 00 64 000 00 8 000 00

Liquidating Partnerships Liquidating Partnerships
Division of Gain Division of Gain
Apr. 30 Gain on Realization Jean Farley, Capital Brad Greene, Capital Alice Hall, Capital 8 000 00 4 000 00 2 400 00 1 600 00

Liquidating Partnerships Liquidating Partnerships
Payment of Liabilities Payment of Liabilities
Apr. 30 Liabilities Cash 9 000 00 9 000 00

Liquidating Partnerships Liquidating Partnerships
Distribution of Cash to Partners Distribution of Cash to Partners
Apr. 30 Jean Farley, Capital Brad Greene, Capital Alice Hall, Capital Cash 26 000 00 24 400 00 23 600 00 74 000 00

Liquidating Partnerships Liquidating Partnerships
Loss on Realization Loss on Realization Between April 10 and April 30, 2006, Between April 10 and April 30, 2006, Farley, Greene, and Hall sell all Farley, Greene, and Hall sell all noncash assets for $44,000. noncash assets for $44,000.

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

Left side of statement

Liquidating Partnerships Liquidating Partnerships
Balance before realization Sale of assets and division of loss –10,000 Farley Capital $22,000 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 x .50 loss x .30 loss x .20 loss x .50 loss x .30 loss x .20

Right side of statement

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

Left side of statement

Liquidating Partnerships Liquidating Partnerships
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 Farley Capital $22,000 Greene Hall Capital Capital $22,000 $22,000

Right side of statement

Liquidating Partnerships Liquidating Partnerships
Loss on Realization Loss on Realization The liabilities of the The liabilities of the partnership are paid, $9,000. partnership are paid, $9,000.

Liquidating Partnerships Liquidating Partnerships
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 — Noncash Cash Assets Liabilities $11,000 $64,000 $9,000 — $9,000 –9,000

Left side of statement

Liquidating Partnerships Liquidating Partnerships
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 Noncash Cash Assets Liabilities $11,000 $64,000 $9,000 — $9,000 –9,000 $ 0

Left side of statement

Liquidating Partnerships Liquidating Partnerships
Loss on Realization Loss on Realization The remaining cash, $46,000, The remaining cash, $46,000, is paid to each partner in is paid to each partner in accordance with the partner’s accordance with the partner’s capital balance. capital balance.

Liquidating Partnerships Liquidating 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 — $9,000 –9,000 $ 0 — $ 0

Left side of statement

Liquidating Partnerships Liquidating 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 –10,000 $12,000 — $12,000 –12,000 $ 0 Greene Hall Capital Capital $22,000 $22,000 –6,000 $16,000 — $16,000 –16,000 $ 0 –4,000 $18,000 — $18,000 –18,000 $ 0

Right side of statement

Liquidating Partnerships Liquidating Partnerships
Sale of Assets Sale of Assets
Apr. 30 Cash Loss on Realization Noncash Assets 44 000 00 20 000 00 64 000 00

Liquidating Partnerships Liquidating Partnerships
Division of Loss Division of Loss
Apr. 30 Jean Farley, Capital Brad Greene, Capital Alice Hall, Capital Loss on Realization 10 000 00 6 000 00 4 000 00 20 000 00

Liquidating Partnerships Liquidating Partnerships
Payment of Liabilities Payment of Liabilities
Apr. 30 Liabilities Cash 9 000 00 9 000 00

Liquidating Partnerships Liquidating Partnerships
Distribution to Partners Distribution to Partners
Apr. 30 Jean Farley, Capital Brad Greene, Capital Alice Hall, Capital Cash 12 000 00 16 000 00 18 000 00 46 000 00

Lifecycle of a Business Lifecycle of a 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 of a Business Lifecycle of a Business
Business Stage Della’s Delights, LLC Principal Advantage Limit legal liability: The partnership is changed to an LLC to limit legal liability of owners. Simplify raising capital: The LLC is changed to a corporation to raise capital from the public.

Della’s Delights, Inc.

Continued

Lifecycle of a Business Lifecycle of a Business
Business Stage Principal Advantage Della’s Delights, Inc. a Provide exit: The company division of International is sold for cash. Foods, Inc.

A venture capitalist is an A venture capitalist is an individual or firm that individual or firm that provides equity financing provides equity financing for a new company. for a new company.

Chapter 13 The End The End

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