partnerships and limited liability corporations
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ChapterChapter1313
Partnerships and LimitedPartnerships and LimitedLiability CorporationsLiability CorporationsAccounting, 21st Edition
Warren Reeve Fess
PowerPoint Presentation by Douglas CloudProfessor Emeritus of Accounting
Pepperdine University
Copyright 2004 South-Western, a division
of Thomson Learning. All rights reserved.
Task Force Image Galleryclip art included in this
electronic presentation is used with the permission of
NVTech Inc.
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Some of the action has been automated,
so click the mouse when you see this
lightning bolt in the lower right-handcorner of the screen. You can point and
click anywhere on the screen.
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so click the mouse when you see this
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1. Describe the basic characteristics ofproprietorships, corporations, partnerships,and limited liability corporation.
2. Describe and illustrate the equity reporting
for proprietorships, corporations,partnerships, and limited liabilitycorporations.
3. Describe and illustrate the accounting forforming a partnership.
ObjectivesObjectives
ObjectivesObjectives
After studying thisAfter studying this
chapter, you shouldchapter, you should
be able to:be able to:
After studying thisAfter studying this
chapter, you shouldchapter, you should
be able to:be able to:
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4. Describe and illustrate the accountingfor dividing the net income and net lossof a partnership.
ObjectivesObjectives
ObjectivesObjectives
5. Describe and illustrate the accountingfor the dissolution of a partnership.
6. Describe and illustrate the accountingfor liquidation of a partnership.
7. Describe the lifecycle of a business,including the role of venture capitalists,initial public offerings, and
underwriters.
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Alternative Forms of Business EntitiesAlternative Forms of Business Entities
Alternative Forms of Business EntitiesAlternative Forms of Business Entities
Advantages Ease in organizing Low cost of
organizingDisadvantages
Difficulty in raising
large amounts ofcapital
Unlimited liability
Joes
Review of Chapter 1
Review of Chapter 1
Aproprietorshipis
owned by one
individual.
Aproprietorshipis
owned by one
individual.
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Alternative Forms of Business EntitiesAlternative Forms of Business Entities
Alternative Forms of Business EntitiesAlternative Forms of Business Entities
A corporation isorganized under
state or federal
statutes as a separatelegal entity.
A corporation isorganized under
state or federal
statutes as a separatelegal entity.
Advantages The ability to obtain large
amounts of resources byissuing stocks
Limited liability for theowners
Disadvantages
Double taxation
More complexityand regulations
J & M, Inc.
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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 anS Corporation. The
IRS allows income to pass
through the S Corporation
to the individual
stockholder without the
corporation having to paytax on the income.
A business may organize
as anS Corporation. The
IRS allows income to pass
through the S Corporation
to the individual
stockholder without the
corporation having to paytax on the income.
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Alternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business Entities
Apartnership is anassociation of two
or more individuals.
Apartnership is anassociation of two
or more individuals.Advantages
More financial
resources than aproprietorship
Additional
management skills
Joe and Martys
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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 Martys
Apartnership is an
association of two
or more individuals.
Apartnership is an
association of two
or more individuals.
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Alternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business EntitiesAlternative Forms of Business Entities
An important right of
partners is toparticipate in
the income of the
partnership.
An important right of
partners is toparticipate in
the income of the
partnership.
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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 incomeon their personal
tax returns.
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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 asthepartnership
agreementorarticles of
partnership.
A partnership is created
by a contract, known as
thepartnership
agreementorarticles of
partnership.
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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 partnershipallows partners that are
not involved in the
operations of the
partnership to retain
limited liability.
This form of partnershipallows partners that are
not involved in the
operations of the
partnership to retain
limited liability.
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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 partnershipfor tax purposes.
ContinuedContinued
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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 withstate governmental authorities.
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Comparison of Alternate
Entity Characteristics
Comparison of Alternate
Entity Characteristics
Ease of FormationEase of Formation
Proprietorship SimpleCorporation Complex
Partnership Simple
LLC Moderate
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Comparison of Alternate
Entity Characteristics
Comparison of Alternate
Entity Characteristics
Legal LiabilityLegal Liability
Proprietorship No limitationCorporation Limited liability
Partnership No limitation
LLC Limited liability
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Comparison of Alternate
Entity Characteristics
Comparison of Alternate
Entity Characteristics
TaxationTaxation
Proprietorship Nontaxable entityCorporation Taxable entity
Partnership Nontaxable entity
LLC Nontaxable entity by election
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Comparison of Alternate
Entity Characteristics
Comparison of Alternate
Entity Characteristics
Limitation on Life of EntityLimitation on Life of Entity
Proprietorship YesCorporation No
Partnership Yes
LLC Yes
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Comparison of Alternate
Entity Characteristics
Comparison of Alternate
Entity Characteristics
Ease of Raising CapitalEase of Raising Capital
Proprietorship DifficultCorporation Easier
Partnership Moderate
LLC Moderate
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Equity Reporting forEquity Reporting for
Alternative Entity FormsAlternative Entity Forms
Equity Reporting forEquity 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 recordedin the owners drawing account.
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Equity Reporting forEquity Reporting for
Alternative Entity FormsAlternative Entity Forms
Equity Reporting forEquity Reporting for
Alternative Entity FormsAlternative Entity Forms
ProprietorshipsProprietorships
Greene Landscapes
Statement of Owners Equity
For the year ended December 31, 2006Duncan Greene, capital, Dec. 31, 2005 $345,000
Net income $79,000
Less withdrawals 35,000
Increase in owners equity 44,000
Duncan Greene, capital, Dec. 31, 2006 $389,000
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Equity Reporting forEquity Reporting for
Alternative Entity FormsAlternative Entity Forms
Equity Reporting forEquity Reporting for
Alternative Entity FormsAlternative Entity Forms
CorporationsCorporations
Investments by stockholders in the
business use capital stock accounts,such as Common Stockand Preferred
Stock.
Dividends to owners (stockholders) are
recorded by a debit toRetained
Earnings.
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Equity Reporting forEquity Reporting for
Alternative Entity FormsAlternative Entity Forms
Equity Reporting forEquity Reporting for
Alternative Entity FormsAlternative Entity Forms
CorporationsCorporations
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Equity Reporting forEquity Reporting for
Alternative Entity FormsAlternative Entity Forms
Equity Reporting forEquity 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 similarto a partnership except that each owner is
referred to as member.
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Equity Reporting for AlternativeEquity Reporting for Alternative
Entity FormsEntity Forms
Equity Reporting for AlternativeEquity Reporting for Alternative
Entity FormsEntity Forms
PartnershipsPartnerships
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Forming a PartnershipForming a PartnershipForming a PartnershipForming a Partnership
Joseph Stevens and Earl Foster agree to combinetheir 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 00
Accounts Receivable 16 300 00
Merchandise Inventory 28 700 00
Store Equipment 5 400 00Office Equipment 1 500 00
Allowance for Doubtful Accounts 1 500 00
Accounts Payable 2 600 00
Joseph Stevens, Capital 55 000 00
Stevens Transfer of Assets, Liability, and Equity
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Forming a PartnershipForming a PartnershipForming a PartnershipForming a Partnership
A similar entry would be madefor the assets, liabilities, and
equity of Earl Foster.
A similar entry would be madefor the assets, liabilities, and
equity of Earl Foster.
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Forming a PartnershipForming a PartnershipForming a PartnershipForming a Partnership
Assume that instead of forming a partnership, thetwo men formed a limited liability corporation.
Assume that instead of forming a partnership, thetwo men formed a limited liability corporation.
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 00Allowance for Doubtful Accounts 1 500 00
Accounts Payable 2 600 00
Joseph Stevens, Member Equity 55 000 00
Stevens Transfer of Assets, Liability, and Equity
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Dividing IncomeDividing IncomeDividing 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 $54,000
Remaining income 10,500 10,500 21,000
Division of net income $40,500 $34,500 $75,000
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Dividing IncomeDividing IncomeDividing 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 partners capital balance on January 1.
Any net income is to be divided equally. Thefirm 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 partners capital balance on January 1.
Any net income is to be divided equally. Thefirm had a net income of $75,000.
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Dividing IncomeDividing IncomeDividing IncomeDividing Income
Services of PartnersServices of Partners
Dec. 31 Income Summary 75 000 00
Jennifer Stone, Capital 41 700 00Crystal Mills, Capital 33 300 00
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Dividing IncomeDividing IncomeDividing IncomeDividing Income
LLC AlternativeLLC Alternative
Dec. 31 Income Summary 75 000 00
Jennifer Stone, Member Equity 41 700 00Crystal Mills, Member Equity 33 300 00
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Dividing IncomeDividing IncomeDividing 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 $54,000
Interest allowance 9,600 7,200 16,800
Total $39,600 $31,200 $70,800
Division of net income $29,200 $20,800 $50,000
Deduct excess equally 10,400 10,400 20,800
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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:
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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 00Joe Canter, Capital 20 000 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.
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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.
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Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Contributing Assets to a PartnershipContributing Assets to a Partnership
June 1 Cash 20 000 00
Sharon Nelson, Capital 20 000 00
For a LLC,Sharon Nelson, Member Equity
would have been credited.
For a LLC,Sharon Nelson, Member Equity
would have been credited.
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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.
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Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
June 1 Merchandise Inventory 3 000 00
Donald Lewis, Capital 1 500 00Gerald Morton, Capital 1 500 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
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Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner BonusesPartner Bonuses
Jenkins and Kramer agree to admit Diaz
as a partner for $31,000. In return, Diazwill 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, Diazwill receive a one-third equity in the
partnership and will share income and
losses equally with Jenkins and Kramer.
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Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner Bonuses from New PartnerPartner Bonuses from New Partner
Equity of Jenkins $20,000
Equity of Kramer 24,000
Diazs Contribution 31,000Total equity after admitting Diaz $75,000
Diazs interest (1/3 x $75,000) $25,000
Diazs contribution $31,000Diazs equity after admission 25,000
Bonus paid to Jenkins and Kramer $ 6,000
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Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner BonusesPartner 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
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Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner BonusesPartner Bonuses
After adjusting the market values, the
capital balance of Janice Cowen is$580,000 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$580,000 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 admittingChua, Cowen and Dodd shared net
income using a 2 to 1 ratio.
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Partnership DissolutionPartnership DissolutionPartnership DissolutionPartnership Dissolution
Partner Bonuses to New PartnerPartner Bonuses to New Partner
Equity of Cowen $ 80,000
Equity of Dodd 40,000
Chuas Contribution 30,000Total equity after admitting Chua $150,000
Chuas interest (1/4 x $150,000) $ 37,500
Chuas contribution $30,000Chuas equity after admission 37,500
Bonus paid to Chua $ 7,500
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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, Capital 37 500 00
1/3 x$7,50
0
2/3 x
$7,500
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
The sale of the assets is
calledrealization
.
The sale of the assets is
called realization.
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Farley, Greene, and Hall share income and losses ina 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 ina ratio of 5:3:2. On April 9, after discontinuing
operations, the firm had the following trial balance.
Cash $11,000Noncash Assets 64,000
Liabilities $ 9,000
Jean Farley, Capital 22,000
Brad Greene, Capital 22,000Alice Hall, Capital 22,000
Total $75,000 $75,000
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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
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $11,000 $64,000 $9,000
Left side of statement
NoncashCash Assets Liabilities
Sale of assets and division
of gain +72,000 -64,000
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $22,000 $22,000 $22,000
Right side of statement
Farley Greene HallCapital Capital Capital
Sale of assets and division
of 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
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $11,000 $64,000 $9,000
Left side of statement
NoncashCash Assets Liabilities
Sale of assets and division
of gain +72,000 64,000 Balance after realization $83,000 $0 $9,000
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $22,000 $22,000 $22,000
Right side of statement
Farley Greene HallCapital Capital Capital
Sale of assets and division
of gain +4,000 +2,400 +1,600Balance after realization $26,000 $24,400 $23,600
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
The partnerships liabilities arepaid, $9,000.
The partnerships liabilities arepaid, $9,000.
Gain on RealizationGain on Realization
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
NoncashCash 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
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
NoncashCash 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
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
The remaining cash, $74,000,is paid to each partner in
accordance with the partners
capital balance.
The remaining cash, $74,000,is paid to each partner in
accordance with the partners
capital balance.
Gain on RealizationGain on Realization
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
NoncashCash 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
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Right side of statement
Balance before realization $22,000 $22,000 $22,000
Farley Greene HallCapital Capital Capital
Sale of assets and division
of gain +4,000 +2,400 +1,600Balance 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 23,600Final balances $ 0 $ 0 $ 0
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Sale of AssetsSale of Assets
Apr. 30 Cash 72 000 00
Noncash Assets 64 000 00
Gain on Realization 8 000 00
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Division of GainDivision of 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
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Payment of LiabilitiesPayment of Liabilities
Apr. 30 Liabilities 9 000 00
Cash 9 000 00
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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
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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 allnoncash assets for $44,000.
Loss on RealizationLoss on RealizationLoss on RealizationLoss on Realization
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $11,000 $64,000 $9,000
Left side of statement
NoncashCash Assets Liabilities
Sale of assets and division
of loss +44,000 64,000
i id i hi
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $22,000 $22,000 $22,000
Right side of statement
Farley Greene HallCapital Capital Capital
Sale of assets and division
of 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
i id i hi
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Balance before realization $11,000 $64,000 $9,000
Left side of statement
NoncashCash Assets Liabilities
Sale of assets and division
of loss +44,000 64,000 Balance after realization $55,000 $0 $9,000
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i id i hiLi id i P hi
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
The liabilities of thepartnership are paid, $9,000.The liabilities of thepartnership are paid, $9,000.
Loss on RealizationLoss on RealizationLoss on RealizationLoss on Realization
i id i hiLi id i P hi
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
NoncashCash 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
Li id i P hiLi id i P hi
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
NoncashCash 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
Li id i P hiLi id i P hi
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
The remaining cash, $46,000,is paid to each partner in
accordance with the partners
capital balance.
The remaining cash, $46,000,
is paid to each partner in
accordance with the partners
capital balance.
Loss on RealizationLoss on RealizationLoss on RealizationLoss on Realization
Li id i P hiLi id ti P t hi
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Left side of statement
NoncashCash 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
Li id i P hiLi id ti P t hi
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Right side of statement
Balance before realization $22,000 $22,000 $22,000
Farley Greene HallCapital Capital Capital
Sale of assets and division
of loss 10,000 6,000 4,000Balance 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 18,000Final balances $ 0 $ 0 $ 0
i id i hi
Li id ti P t hiLi id ti P t hi
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Sale of AssetsSale of Assets
Apr. 30 Cash 44 000 00
Loss on Realization 20 000 00
Noncash Assets 64 000 00
i id i hi
Li id ti P t hiLi id ti P t hi
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Division of LossDivision of Loss
Brad Greene, Capital 6 000 00
Alice Hall, Capital 4 000 00
Loss on Realization 20 000 00
Apr. 30 Jean Farley, Capital 10 000 00
Li id i P hi
Li id ti P t hiLi id ti P t hi
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Liquidating PartnershipsLiquidating PartnershipsLiquidating PartnershipsLiquidating Partnerships
Payment of LiabilitiesPayment of Liabilities
Apr. 30 Liabilities 9 000 00
Cash 9 000 00
i id i hiLi id i P hi
Li id ti P t hiLi id ti P t hi
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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
if l f iLif l f B i
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Lifecycle of a BusinessLifecycle of a BusinessLifecycle of a BusinessLifecycle of a Business
Business Stage Principal AdvantageDellas Delights,
Proprietorship
Jeff Jacobi, Proprietor
Form easily: Jacobi forms a
business by obtaining a
local business license and
opening a bank account.
Dellas Delights,
PartnershipJacobi and Lange,
Partners
Expand capital and
expertise: Jacobi admits anew partner that contributes
capital and expertise.
Continued
Lif l f B iLif l f B i
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Lifecycle of a BusinessLifecycle of a BusinessLifecycle of a BusinessLifecycle of a Business
Business Stage Principal Advantage
Dellas Delights, LLC Limit legal liability: The
partnership is changed to an
LLC to limit legal liability
of owners.
Dellas Delights, Inc.Simplify raising capital:The LLC is changed to a
corporation to raise capital
from the public.Continued
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A venture capitalistis anindividual or firm that
provides equity financing
for a new company.
A venture capitalistis anindividual or firm that
provides equity financing
for a new company.
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The EndThe End
Chapter 13Chapter 13
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