CHAPTER 12
ACCOUNTING FOR PARTNERSHIPS AND
LIMITED LIABILITY COMPANIES
DISCUSSION QUESTIONS
1. a. Proprietorship: Ease of formation and nontaxable entity.
b. Partnership: Expanded owner expertise and capital, nontaxable entity, and moderate
complexity of formation.
c. Limited liability company: Limited liability to owners, expanded access to capital,
nontaxable entity, and moderate complexity of formation.
2. The disadvantages of a partnership are that its life is limited, each partner has unlimited
liability, one partner can bind the partnership to contracts, and raising large amounts of
capital is more difficult for a partnership than a limited liability company.
3. Yes. A partnership may incur losses in excess of the total investment of all partners. The
division of losses among the partners is made according to their agreement. In addition, because
of the unlimited liability of each partner for partnership debts, a particular partner may
actually lose a greater amount than his or her capital balance.
4. The partnership agreement (partnership) or operating agreement (LLC) establishes the incomesharing ratio among the partners (members), amounts to be invested, and admission and
withdrawal of partners (members). In addition, for an LLC the operating agreement specifies
if the LLC is owner-managed or manager-managed.
5. No. Maholic would have to bear his share of losses. In the absence of any agreement as to
division of net income or net loss, his share would be one-third. In addition, because of the
unlimited liability of each partner, Maholic may have to bear more than one-third of the losses
if one partner is unable to absorb his share of the losses.

6. Yes. Partnership net income is divided according to the income-sharing ratio, regardless of
the amount of the withdrawals by the partners. Therefore, it is very likely that the
partners’ monthly withdrawals from a partnership will not exactly equal their shares of net
income.
7. a. Debit the partner’s drawing account and credit Cash.
b. No. Payments to partners and the division of net income are separate. The amount of one
does not affect the amount of the other.

c. Debit the income summary account for the amount of the net income and credit the
partners’ capital accounts for their respective shares of the net income.
8. a. By purchase of an interest, the capital interest of the new partner is obtained from the old
partner, and neither the total assets nor the total equity of the partnership is affected.
b. By investment, both the total assets and the total equity of the partnership are increased.

12-1


© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


CHAPTER 12

Accounting for Partnerships and Limited Liability Companies

DISCUSSION QUESTIONS (Continued)
9. It is important to state all partnership assets in terms of current prices at the time of the
admission of a new partner because failure to do so might result in participation by the new
partner in gains or losses attributable to the period prior to admission to the partnership.
To illustrate, assume that A and B share net income and net loss equally and operate a
partnership that owns land recorded at and costing $20,000. C is admitted to the partnership,
and the three partners share in income equally. The day after C is admitted to the partnership,
the land is sold for $35,000 and, since the land was not revalued, C receives a one-third
distribution of the $15,000 gain. In this case, C participates in the gain attributable to the
period prior to admission to the partnership.
10. A new partner who is expected to improve the fortunes (income) of the partnership, through
such things as reputation or skill, might be given equity in excess of the amount invested to
join the partnership.


12-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


PRACTICE EXERCISES
PE 12–1A
Cash
Accounts Receivable
Patent
Accounts Payable
Allowance for Doubtful Accounts
Rachel Bell, Capital

51,000
65,000
195,000
12,000
3,000
296,000

PE 12–1B
Cash
Inventory
Land
Notes Payable
Austin Fisher, Capital

36,000
42,000
175,000

35,000
218,000

PE 12–2A
Distributed to Orr and Graham:

Graham

Total

Annual salary……………………$28,000
3,6001
Interest…………………………
3,600 3
Remaining income……………

$

$28,000
12,600
5,400

Total distributed to partners… $35,200

$10,800

1
2
3
4


$60,000 × 6%
$150,000 × 6%
($46,000 – $28,000 – $12,600) × 2/3
($46,000 – $28,000 – $12,600) × 1/3

Orr: $35,200

Orr

0
9,000 2
1,800 4

$46,000


PE 12–2B
Distributed to Prado and Nicks:

Prado

Nicks

0
1
Interest…………………………… 1,000
Remaining income……………… 35,250
Total distributed to partners… $36,250


$38,000

Annual salary…………………… $

1
2
3

Total
$ 38,000
2

2,500
35,250 3
$75,750

3,500
70,500
$112,000

$20,000 × 5%
$50,000 × 5%
($112,000 – $38,000 – $3,500) × 50%

Nicks: $75,750

PE 12–3A
a. Land
Tony Vale, Capital
Jordan Henry, Capital

($125,000 – $80,000) × 50%.
Jordan Henry, Capital
Amar Harb, Capital
($30,000 + $22,500) × 50%.

b.

45,000
22,500
22,500

26,250
26,250

PE 12–3B
a. Equipment
Kevin Camden, Capital
Chloe Sayler, Capital
($39,000 – $30,000) × 2/3.
b.

Cash
Demarco Lee, Capital

9,000
6,000
3,000

60,000
60,000



PE 12–4A
Equity of Bellows……………………………………………………………………
Rodriguez’s contribution…………………………………………………………
Total equity after admitting Rodriguez…………………………………………
Rodriguez’s equity interest………………………………………………………
Rodriguez’s equity after admission………………………………………………
Rodriguez’s contribution…………………………………………………………
Rodriguez’s equity after admission……………………………………………
Bonus paid to Bellows……………………………………………………………

$200,000
360,000
$560,000
×
60%
$336,000
$360,000
336,000
$ 24,000

PE 12–4B
Equity of Hiro………………………………………………………………………
Marone’s contribution………………………………………………………………
Total equity after admitting Marone………………………………………………
Marone’s equity interest………………………………………………………...…
Marone’s equity after admission…………………………………………………
Marone’s contribution………………………………………………………………
Bonus paid to Marone………………………………………………………………


$ 75,000
25,000
$100,000
×
40%
$ 40,000
25,000
$ 15,000

PE 12–5A
Morgan’s equity prior to liquidation……………………………
Realization of asset sales………………………………………… $120,000
Book value of assets
102,000
($32,000 + $60,000 + $10,000)………………………………
$ 18,000
Gain on liquidation………………………………………………
Morgan’s share of gain (50% × $18,000)………………………
Morgan’s cash distribution………………………………………

$32,000

9,000
$41,000

PE 12–5B
Manning’s equity prior to liquidation…………………………
Realization of asset sales………………………………………… $410,000
Book value of assets

470,000
($240,000 + $150,000 + $80,000)……………………………
Loss on liquidation……………………………………………… $ (60,000)
Manning’s share of loss (50% × $60,000)……………………
Manning’s cash distribution……………………………………

$240,000

30,000
$270,000


PE 12–6A
a. Barns’ equity prior to liquidation………………
Realization of asset sales…………………………
Book value of assets*……………………………
Loss on liquidation………………………………
Barns’ share of loss (50% × –$120,000)………
Barns’ deficiency…………………………………

$55,000
$ 40,000
160,000
$(120,000)
(60,000)
$ (5,000)

* $105,000 + $55,000
b. $40,000. ($105,000 – $60,000 share of loss – $5,000 Barns’ deficiency;
also equals the amount realized from asset sales)

PE 12–6B
a. Bonilla’s equity prior to liquidation……………
Realization of asset sales………………………
Book value of assets*………………………………
Loss on liquidation…………………………………
Bonilla’s share of loss (50% × –$400,000)……
Bonilla’s deficiency…………………………………

$ 185,000
$ 30,000
430,000
$(400,000)
(200,000)
$ (15,000)

* $185,000 + $245,000
b. $30,000. ($245,000 – $200,000 share of loss – $15,000 Bonilla’s
deficiency; also equals the amount realized from asset sales)
PE 12–7A
a. 2014:

$12,375,000 = $165,000 per employee
75 employees

2015:

$15,400,000 = $175,000 per employee
88 employees

b. Niles and Cohen, CPAs grew revenues by $3,025,000 ($15,400,0000 –

$12,375,000), or 24.4% ($3,025,000 ÷ $12,375,000). The number of
employees expanded by 13, or 17.3% (13 ÷ 75). The growth in revenue
was more than the growth in the number of employees; thus, the revenue
per employee improved between the two years. The firm is more
efficient in generating revenues from its staff resources between
the two years.


PE 12–7B
a. 2014:

$1,800,000 = $150,000 per employee
12 employees

2015:

$1,440,000 = $160,000 per employee
9 employees

b. Eclipse Architects reduced revenues by $360,000 ($1,800,000 –
$1,440,000), or 20% ($360,000 ÷ $1,800,000). The number of
employees declined by 3, or 25% (3 ÷ 12). The decline in revenue
was less than the decline in the number of employees; thus, the
revenue per employee improved between the two years. The firm
is more efficient in generating revenues from its staff resources
between the two years.


EXERCISES
Ex. 12–1

Cash
Accounts Receivable*
Merchandise Inventory
Equipment
Allowance for Doubtful Accounts
Beyonce Sheffield, Capital

18,000
141,000
98,400
81,500
5,700
333,200

*$146,000 – $5,000

Ex. 12–2
Cash
Accounts Receivable
Land
Equipment
Allowance for Doubtful Accounts
Accounts Payable
Notes Payable
Amanda Carcello, Capital

60,000
130,000
275,000
30,500

8,500
24,800
90,000
372,200


CHAPTER 12

Accounting for Partnerships and Limited Liability Companies

Ex. 12–3
a.
b.
c.
d.
e.

……………………………………………………
……………………………………………………
……………………………………………………
……………………………………………………
……………………………………………………

Details:

Murphy

Murphy

Drake


$175,000
262,500
146,300
170,000
174,500

$175,000
87,500
203,700
180,000
175,500

Drake

Total

a. Net income (1:1)…………………$175,000

$175,000

$350,000

b. Net income (3:1)…………………$262,500

$ 87,500
$ 4,500 2

$350,000
$ 18,000


c. Interest allowance……………… $ 13,500 1
Remaining income (2:3)……… 132,800
Net income……………………… $146,300
d. Salary allowance……………… $ 40,000
Remaining income (1:1)……… 130,000
Net income……………………… $170,000
e. Interest allowance……………… $ 13,500 1
Salary allowance………………… 40,000
Remaining income (1:1)……… 121,000
Net income……………………… $174,500

199,200

332,000

$203,700

$350,000

$ 50,000
130,000

$ 90,000
260,000

$180,000
$ 4,500 2

$350,000

$ 18,000

50,000
121,000

90,000
242,000

$175,500

$350,000

1

$270,000 × 5%

2

$90,000 × 5%

12-9
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


Ex. 12–4

a.
b.
c.
d.

e.

Murphy

……………………………………………………………………
……………………………………………………………………
……………………………………………………………………
……………………………………………………………………
……………………………………………………………………

Details:

Murphy

Drake

$63,000
94,500
56,700
58,000
62,500

$63,000
31,500
69,300
68,000
63,500

Drake


Total

a. Net income (1:1)……………………………… $63,000

$63,000

$126,000

b. Net income (3:1)………………………………

$94,500

$31,500

$126,000

c. Interest allowance……………………………
Remaining income (2:3)……………………

$13,5001
43,200

$ 4,5002
64,800

$ 18,000
108,000

Net income……………………………………


$56,700

$69,300

$126,000

d. Salary allowance……………………………
Remaining income (1:1)……………………

$40,000
18,000

$50,000
18,000

$ 90,000
36,000

Net income……………………………………

$58,000

$68,000

$126,000

$ 4,5002
50,000
9,000


$ 18,000
90,000
18,000

$63,500

$126,000

e. Interest allowance…………………………… $13,5001
Salary allowance……………………………… 40,000
Remaining income (1:1)……………………
9,000

Net income……………………………………

$62,500

1

$270,000 × 5%

2

$90,000 × 5%

Ex. 12–5

Megan
West


Salary allowances.......................................
Remainder (net loss, $40,000 plus $80,000
salary allowances) divided equally.......

$

Net loss........................................................

$

45,000
(60,000)
(15,000)

Jon
Sokolov

Total

$ 35,000 $ 80,000
(60,000)
$(25,000) $

(120,000)
(40,000)


Ex. 12–6
a. The partners can divide net income in any ratio that they wish. However, in the
absence of an agreement, net income is divided equally between the partners.

Therefore, Wanda’s conclusion was correct, but for the wrong reasons. In
addition, note that the monthly drawings have no impact on the division of
income. These drawings are not the same as a salary allowance, which is part
of a formal income-sharing agreement.
b. An income-sharing agreement could be designed to credit each partner’s capital
account for his or her respective share of income. For example, an income-sharing
agreement could be designed to credit Wanda for interest on her capital
contribution, while a salary allowance could be designed to credit Ava for the greater
effort she puts into the partnership. After deducting for these items, the remaining
income
could be divided equally.
Ex. 12–7
a. Net income: $112,000

Neel

Salary allowance………………… $45,000
Remaining income………………
22,200
Net income………………………… $67,200

Tate

Total

$30,000
14,800

$ 75,000
37,000

$112,000

$44,800

Neel’s remaining income: ($112,000 – $75,000) × 3/5
Tate’s remaining income: ($112,000 – $75,000) × 2/5
b. (1)

(2)

Income Summary
Zachery Neel, Member Equity
Lauren Tate, Member Equity
Zachery Neel, Member Equity
Lauren Tate, Member Equity
Zachery Neel, Drawing
Lauren Tate, Drawing

112,000
67,200
44,800
45,000
30,000
45,000
30,000

Note: The reduction in members’ equity from withdrawals would be disclosed
on the statement of members’ equity.
c. If the net income of the LLC were less than the sum of the salary allowances,
both members would still be credited with their salary allowances. From this

amount, each partner would deduct his or her share of the excess of the
total salary allowance over the net income. Thus, the difference between the
net income and total salary allowances would be allocated to each partner as
a deduction, according to the income-sharing ratio.


Ex. 12–8
a.

WLKT
Partners

Madison
Sanders

Salary allowance………………
1
Interest allowance…………… $ 20,000

$ 55,000

106,000

4,000
79,500

Net income…………………… $126,000

$138,500


Remaining income (4:3:3)…

1
2
3

b.

Observer
Newspaper,
LLC

Total
$ 55,000

2

$16,000
79,500
$95,500

3

40,000
265,000
$360,000

10% × $200,000
10% × $40,000
10% × $160,000


2014
Dec. 31 Income Summary
WLKT Partners, Member Equity
Madison Sanders, Member Equity
Observer Newspaper, LLC,
Member Equity

2014
Dec. 31 WLKT Partners, Member Equity
Madison Sanders, Member Equity*
Observer Newspaper, LLC,
Member Equity
WLKT Partners, Drawing
Madison Sanders, Drawing
Observer Newspaper, LLC,
Drawing
* $55,000 + $4,000

360,000
126,000
138,500
95,500

20,000
59,000

16,000
20,000
59,000


16,000


Ex. 12–8 (Concluded)
MARVEL MEDIA, LLC

c.

Statement of Members’ Equity
For the Year Ended December 31, 2014
Observer

Members’ equity,
January 1, 2014
Additional investment
during the year

WLKT

Madison

Newspaper,

Partners

Sanders

LLC


$200,000

$ 40,000

$160,000

Total

$400,000
50,000

50,000
$250,000
126,000

$ 40,000
138,500

$160,000
95,500

$450,000
360,000

$376,000

$178,500

$255,500


$810,000

Withdrawals during
the year

20,000

59,000

16,000

95,000

Members’ equity,
December 31, 2014

$356,000

$119,500

$239,500

$715,000

Net income for the year

d. An income-sharing agreement provides flexibility and fairness. Without an
income-sharing agreement, each member would be credited with an equal
proportion of the total earnings, or one-third each. However, the members provide
different capital and effort to the LLC. WLKT is a large contributor of capital

(funds), while Madison Sanders is providing ongoing effort and expertise. These
separate contributions should be acknowledged in the income-sharing formula.
Thus, the agreement credits member equity for both interest on capital and a
salary allowance for Sanders. Any remaining income is credited to capital
according to a negotiated allocation, which in this case is not an equal amount
to each member.


Ex. 12–9
a. Jan.

Dec.

b.

Dec.

c.

31 Partner, Drawing
Cash

50,000,000

31 Income Summary
Partner, Capital

740,000,000

31 Partner, Capital*

Partner, Drawing

600,000,000

50,000,000

740,000,000

600,000,000

* 12 months × ₤50 million
d. Partner drawings are not the same as a salary. The drawings represent a
distribution of the profits of the partnership that has been credited to the
partners’ capital accounts. In this case, the drawings occur during the year prior
to the final accounting for profit distribution. Thus, the drawings could end up
greater than the final partner net income. If this were the case, the partner would
be liable to the partnership for returning the excess drawings over the income
earned for the year.

Ex. 12–10
a. and b.
May Cheng, Capital
Michael Cross, Capital
$207,000 × 1/3.

69,000
69,000

Note: The sale to Cross is not a transaction of the partnership, so the sales
price is not considered in this journal entry.


Ex. 12–11 a.
(1)

(2)

Aaron Garner, Capital (20% × $180,000)
Ricardo Fernandez, Capital (25% × $120,000)
Aisha Carpenter, Capital

36,000
30,000

Cash
Isabel Diaz, Capital

90,000

66,000

b. Aaron Garner, Capital ($180,000 – $36,000)…………… $144,000
90,000
Ricardo Fernandez, Capital ($120,000 – $30,000)……
66,000
Aisha Carpenter………………………………………………
90,000
Isabel Diaz……………………………………………………

90,000



Ex. 12–12
a. Cash
Alex Jensen, Capital
Elon Craig, Capital
Marco Vega, Capital
b. Alex Jensen……………………………………………
Elon Craig……………………………………………
Marco Vega…………………………………………

70,000
4,000
4,000
78,000
$116,000
176,000
78,000

c. Tangible assets should be adjusted to current market prices so that the new
partner does not share in any gains or losses from changes in market prices
prior to being admitted. For example, if the market price of land doubled prior
to admitting a new partner, the existing partners should realize the increase in
the value of the land in their capital accounts prior to the new partner’s
admission. Otherwise, the new partner would share in the increase in the
market value of the land.
Ex. 12–13
a. Bonus received by Solano:
$ 72,000
Cody Jenkins, capital………………………………
38,000

Jun Ito, capital………………………………………
30,000
Solano’s contribution………………………………
$140,000
Total partners’ capital after admitting Solano…
Solano’s equity interest after admission………… ×
30%
$ 42,000
Valeria Solano, capital……………………………
30,000
Solano’s contribution………………………………
Bonus paid to Solano………………………………
b.

Cash
Cody Jenkins, Capital
Jun Ito, Capital
Valeria Solano, Capital

$ 12,000
30,000
6,000
6,000
42,000

c. Apparently, Jenkins and Ito value the expertise offered by Solano. Solano is able
to use the computer to design and render landscape designs. It is likely that this
type of skill is very useful for both selling and implementing landscape ideas.
Her skills can help the partnership sell ideas to clients by providing computer
renderings of the designs. In this way, a client can see the design on the

computer before agreeing to work. In addition, the computer-aided landscapes
provide materials plans, labor estimates, and other cost estimates for a particular
design. Thus, the partners may be better able to control their costs by using
Solano’s skills. Overall, they value her skills sufficiently to provide a partner
bonus upon her admittance to the partnership.


Ex. 12–14
a. Medical Equipment
Abrams, Member Equity*
Lipscomb, Member Equity**

40,000
16,000
24,000

* $40,000 × 2/5 = $16,000
** $40,000 × 3/5 = $24,000
b. (1)

Cash
Abrams, Member Equity*
Lipscomb, Member Equity**
Lin, Member Equity

228,000
15,600
23,400
189,000


* $39,000 × 2/5 = $15,600
** $39,000 × 3/5 = $23,400
Supporting calculations for the bonus:
Abrams, member equity ($154,000 + $16,000)…… $170,000
Lipscomb, member equity ($208,000 + $24,000)… 232,000
Contribution by Lin…………………………………… 228,000
Total equity after admitting Lin……………………… $630,000
×
30%
Lin’s equity interest after admission…………… … $
Lin, member equity…………………………………… $189,000
Contribution by Lin…………………………………… $228,000
Lin’s equity interest after admission……………… 189,000
Bonus paid to Abrams and Lipscomb…………… $ 39,000
(2)

Cash
Abrams, Member Equity*
Lipscomb, Member Equity**
Lin, Member Equity

124,000
3,000
4,500
131,500

* $7,500 × 2/5 = $3,000
** $7,500 × 3/5 = $4,500
Supporting calculations for the bonus:
Abrams, member equity…………………………… $170,000

Lipscomb, member equity…………………………… 232,000
Contribution by Lin…………………………………… 124,000
Total equity after admitting Lin…………………… $526,000
Lin’s equity interest after admission…………… … ×
25%
Lin, member equity…………………………………… $131,500
Contribution by Lin…………………………………… 124,000
Bonus paid to Lin……………………………………

$

7,500


Ex. 12–15
a. G. Ferris, Capital
T. Martinez, Capital

9,000
9,000

Equipment
b. (1)

18,000

Cash

40,000


G. Ferris, Capital*

4,000

T. Martinez, Capital

4,000

D. Perez, Capital

48,000

* $8,000 × 1/2 = $4,000
Supporting calculations for the bonus:
G. Ferris, capital ($133,000 – $9,000)…… $124,000
76,000
T. Martinez, capital ($85,000 – $9,000)…
40,000
Contribution by Perez………………………
Total equity after admitting Perez………… $240,000
Perez’s equity interest after admission … ×
20%
$ 48,000
D. Perez, capital……………………………
40,000
Contribution by Perez………………………
Bonus paid to Perez…………………………
(2)

Cash


$

8,000
112,000

G. Ferris, Capital*

9,200

T. Martinez, Capital

9,200

D. Perez, Capital

93,600

* $18,400 × 1/2 = $9,200
Supporting calculations for the bonus:
G. Ferris, capital……………………………
T. Martinez, capital…………………………
Contribution by Perez………………………
Total equity after admitting Perez…………
Perez’s equity interest after admission …
D. Perez, capital……………………………

$124,000
76,000
112,000

$312,000
$
30%
×
$ 93,600

Contribution by Perez……………………… $112,000
93,600
D. Perez, capital………………………………
$ 18,400
Bonus paid to Ferris and Martinez
The bonus to Ferris and Martinez is credited equally between Ferris’
and Martinez’s capital accounts.


Ex. 12–16
ANGEL INVESTOR ASSOCIATES
Statement of Partnership Equity
For the Year Ended December 31, 2014
Total
Dennis

Ben

Randy

Partner-

Overton,


Testerman,

Campbell,

ship

Capital

Capital

Capital

Capital

Partnership capital,
January 1, 2014
Admission of Randy Campbell
Salary allowance
Remaining income
Less: Partner withdrawals

$180,000
—
40,000
52,800
1
(46,400)

$120,000
—


$ 75,000

Partnership capital,
December 31, 2014

$226,400

$137,600

1
2
3

35,200
2
(17,600)

22,000
3
(11,000)
$ 86,000

$300,000
75,000
40,000
110,000
(75,000)
$450,000


($52,800 + $40,000) ÷ 2
$35,200 ÷ 2
$22,000 ÷ 2

Admission of Randy Campbell:
Equity of initial partners prior to admission………………………
Contribution by Campbell……………………………………………
Total………………………………………………………………………
Campbell’s equity interest after admission…………………… …
Campbell’s equity after admission…………………………………
Contribution by Campbell……………………………………………
Bonus……………………………………………………………………

$300,000
75,000
$375,000
×
20%
$ 75,000
75,000
$

0

Net income distribution:
The income-sharing ratio is equal to the proportion of the capital balances
after admitting Campbell according to the partnership agreement:
Dennis Overton:

$180,000

$375,000 = 48%

Ben Testerman:

$120,000
$375,000 = 32%

Randy Campbell:

$75,000
$375,000 = 20%

These ratios can be multiplied by the $110,000 remaining income after the
salary allowance to Overton ($150,000 – $40,000). These amounts are credited to
the respective partner capital accounts. For example, Dennis Overton: $52,800 =
$110,000 × 48%.


CHAPTER 12

Accounting for Partnerships and Limited Liability Companies

Ex. 12–16 (Concluded)
Withdrawals:
Half of the remaining income is distributed to the three partners. Overton
need not take the salary allowance as a withdrawal but may allow it to
accumulate in the member equity account. He is taking half of the
allowance as a withdrawal.

Ex. 12–17 a.

Merchandise Inventory

24,000

Allowance for Doubtful Accounts

3,000

Nick Rawls, Capital*

9,000

Sarah Fitzpatrick, Capital**

6,000

Antoine
Faber,
Capital**
* ($24,000
– $3,000)
× 3/7
** ($24,000 – $3,000) × 2/7
b.

6,000

Nick Rawls, Capital*
Cash
Notes Payable


274,000
104,000
170,000

* $265,000 + $9,000

Ex. 12–18
a. The income-sharing ratio is determined by dividing the net income
for each member by the total net income. Thus, in 2014, the incomesharing ratio is as follows:
$57,000
Idaho Properties, LLC:

= 30%
$190,000
$133,000

Silver Streams, LLC:

= 70%
$190,000

Or a 3:7 ratio

12-19
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


Ex. 12–18 (Concluded)
b. Following the same procedure as in (a):

$62,500
Idaho Properties, LLC:

= 25%
$250,000
$137,500

Silver Streams, LLC:

= 55%
$250,000
$50,000

Thomas Dunn:

$250,000

= 20%

c. Thomas Dunn provided a $230,000 cash contribution to the business.
The amount credited to his member equity account is this amount
less a $10,000 bonus paid to the other two members, or $220,000.
d. The positive entries to Idaho Properties and Silver Streams are the
result of a bonus paid by Thomas Dunn.
e. Thomas Dunn acquired a 22% interest in the business on January 1,
2015, computed as follows:
Thomas Dunn, member equity…………………………… $ 220,000
333,000
Idaho Properties, LLC, member equity…………………
447,000

Silver Streams, LLC, member equity……………………
Total…………………………………………………………… $1,000,000
Thomas’ ownership interest after admission
($220,000 ÷ $1,000,000)…………………………………

22%

f. Withdrawals need not be the same as the income credited to the
members’ equity accounts. Withdrawals will be less than the amounts
credited when the members wish to retain capital in the business to
support business growth or otherwise strengthen the business.


Ex. 12–19
a. Cash balance………………………………………………… $19,000
35,000
Sum of capital accounts…………………………………
Loss on realization………………………………………… $16,000
Manley

Singh

$20,000
Capital balances before realization……………………
8,000
b. Division of loss on realization*……………………………
$12,000
Balances……………………………………………………
c. Cash distributed to partners……………………………… 12,000
0

Final balances……………………………………………… $

$15,000
8,000
$ 7,000
7,000
$

0

* $16,000 ÷ 2

Ex. 12–20

Oliver

Capital balances before realization………… $28,000
Division of gain on realization
[($67,000 – $63,000) ÷ 2]……………………… 2,000
Capital balances after realization…………
$30,000
Cash distributed to partners………………… 30,000
Final balances…………………………………

$

0

Ansari


Total

$35,000

$63,000

2,000
$37,000
37,000
$

0

Ex. 12–21
a. Deficiency
b. $97,500 ($73,500 + $41,000 – $17,000)
c. Cash
Fowler, Capital
Support for entry:

17,000
17,000
Lewis

Capital balances after realization……… $73,500
Receipt of partner deficiency……………
Capital balances after eliminating
deficiency…………………………………… $73,500

Zapata


Fowler

$41,000

$(17,000)
17,000

$41,000

$

0

Dr.


Ex. 12–22
a. Cash should be distributed as indicated in the following tabulation:
Bray
Capital invested………
Net income……………
Capital balances and
cash distribution……

Lincoln

Mapes

Total


$225
+325

$300
+325

$—
+325

$ 525
+ 975 *

$550

$625

$325

$1,500

* $1,500 – $225 – $300
b. Mapes has a capital deficiency of $75, as indicated in the following
tabulation:
Bray
Capital invested……
Net loss…………………
Capital balances……

Lincoln


Mapes

Total

$225
– 75

$300
– 75

$—
–75

$525
–225 *

$150

$225

$(75) Dr.

$300

* $300 – $525

Ex. 12–23

Nettles


Capital balances after realization……$(15,000)
Distribution of partner deficiency…… 15,000
Capital balances after deficiency
0
distribution………………………………$
* $15,000 × 2/3
** $15,000 × 1/3

King

Tanaka

$ 46,000
(10,000)*

$71,000
(5,000) **

$ 36,000

$66,000


CHAPTER 12

Accounting for Partnerships and Limited Liability Companies

Ex. 12–24


GOLD, PORTER, AND SIMS
Statement of Partnership Liquidation
For the Period Ending July 1–29, 2014
+

Cash

Noncash
Assets = Liabilities

+

Gold
(3/6)

+

Porter
(2/6)

+

Sims
(1/6)

Balances before realization
Sale of assets and division of loss

$ 56,000 $
+90,000


96,000
–96,000

$

32,000
—

$55,000
–3,000

$45,000
–2,000

$20,000
–1,000

Balances after realization
Payment of liabilities

$146,000 $
–32,000

0
—

$

32,000

–32,000

$52,000
—

$43,000
—

$19,000
—

Balances after payment of liabilities
Cash distributed to partners

$114,000 $
–114,000

0
—

$

0
—

$52,000
–52,000

$43,000
–43,000


$19,000
–19,000

0

0

$

0

Final balances

$

$

$

0

$

0

12-23
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

$


0


CHAPTER 12

Accounting for Partnerships and Limited Liability Companies

Ex. 12–25
ARCADIA SALES, LLC
Statement of LLC Liquidation
For the Period August 1–31, 2014

a.

Member Equity
+

Cash

b.

Noncash
Assets = Liabilities +

Lester
+

(2/5)


Torres
(2/5)

+

Hearst
(1/5)

Balances before realization
Sale of assets and division of gain

$ 26,000
+158,000

$146,000
–146,000

$35,000
—

$49,000
+4,800

$61,000
+4,800

$27,000
+2,400

Balances after realization

Payment of liabilities

$184,000
–35,000

$

0
—

$35,000
–35,000

$53,800
—

$65,800
—

$29,400
—

Balances after payment of liabilities
Cash distributed to members

$149,000
–149,000

$


0
—

$

0
—

$53,800
–53,800

$65,800
–65,800

$29,400
–29,400

Final balances

$

$

0

$

0

$


$

$

Lester, Member Equity
Torres, Member Equity
Hearst, Member Equity
Cash

0

0

0

53,800
65,800
29,400
149,000

c. The income- and loss-sharing ratio is only used to distribute the gain or loss on the realization of asset sales.
It is not used for the final distribution. The final distribution is based upon the credit balances in the member
equity accounts after all gains and losses on realization have been divided and any partner deficiencies have
been paid or allocated.
12-24
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0