Click to edit Master title style Accounting for Partnerships and Limited Liability Companies 12

Click to edit Master title style Describe the basic characteristics of proprietorships, partnerships, and limited liability companies. 2. Describe and illustrate the accounting for forming a partnership and for dividing the net income and net loss of a partnership. After studying this chapter, you should be able to:

Click to edit Master title style Describe and illustrate the accounting for partner admission and withdrawal. 4. Describe and illustrate the accounting for liquidating a partnership. 5. Prepare the statement of partnership equity. After studying this chapter, you should be able to:

Click to edit Master title style Describe the basic characteristics of proprietorships, partnerships, and limited liability companies. Objective

Click to edit Master title style Advantages Simple to form Ability to be one’s own boss Disadvantages Difficulty in raising large amounts of capital Unlimited liability 12-1 A proprietorship is a business enterprise owned by a single individual. Proprietorship

Click to edit Master title style A partnership is an association of two or more individuals who own and manage a business for profit Partnership

Click to edit Master title style 7 7 Characteristics of Partnerships Partnership Agreement Voluntary Association Limited Life Taxation Unlimited Liability Mutual Agency

Click to edit Master title style A partnership is an association of two or more individuals who own and manage a business for profit. Advantages More financial resources than a proprietorship Additional management skills Disadvantages Limited life Unlimited liability Co-ownership of partnership property Mutual agency 12-1 Partnership

Click to edit Master title style  An important right of partners is to participate in the income of the partnership  A partnership, like a proprietorship, is a nontaxable entity.  A partnership is created by a contract, known as the partnership agreement or articles of partnership. Partnership

Click to edit Master title style Limited Partnership A variant of the regular partnership is a limited partnership. This form of partnership allows partners who are not involved in the operations of the partnership to retain limited liability.

Click to edit Master title style 11 9  Combines the advantages of the corporate and partnership forms Limited Liability Companies  LLCs must file “articles of organization” with state governmental authorities.  Owners are termed “members” rather than “partners.”  Members must create an operating agreement. (Continued)

Click to edit Master title style 12  An LLC may elect to be treated as a partnership for tax purposes Limited Liability Companies  Most operating agreements specify continuity of life for the LLC, even when a member withdraws.  Members may elect operating the LLC as a “member-managed” entity.  An LLC provides limited liability for the members.

Click to edit Master title style 13 Organizations with Partnership Characteristics Limited Partnerships General partners assume management duties and unlimited liability for partnership debts. Limited partners have no personal liability beyond invested amounts. General partners assume management duties and unlimited liability for partnership debts. Limited partners have no personal liability beyond invested amounts. Limited Liability Partnerships Protects innocent partners from malpractice or negligence claims. Most states hold all partners personally liable for partnership debts. Protects innocent partners from malpractice or negligence claims. Most states hold all partners personally liable for partnership debts. Limited Liability Corporations Owners have same limited liability feature as owners of a corporation. A limited liability corporation typically has a limited life. Owners have same limited liability feature as owners of a corporation. A limited liability corporation typically has a limited life.

Click to edit Master title style 14 Choosing a Business Form Many factors should be considered when choosing the proper business form.

Click to edit Master title style Ease of Formation ProprietorshipSimple PartnershipModerate LLCModerate Characteristics of Proprietorships, Partnerships, and Limited Liability companies

Click to edit Master title style Legal Liability ProprietorshipNo limitation PartnershipNo limitation LLCLimited liability Characteristics of Proprietorships, Partnerships, and Limited Liability companies 2

Click to edit Master title style Taxation ProprietorshipNontaxable* PartnershipNontaxable* LLCNontaxable** *Pass-through entity **Pass-through entity by election Characteristics of Proprietorships, Partnerships, and Limited Liability companies 2

Click to edit Master title style Limitation on Life of Entity ProprietorshipYes PartnershipYes LLCNo Characteristics of Proprietorships, Partnerships, and Limited Liability companies 2

Click to edit Master title style Access to Capital ProprietorshipLimited PartnershipLimited LLCAverage Characteristics of Proprietorships, Partnerships, and Limited Liability companies 2

Click to edit Master title style 20 Describe and illustrate the accounting for forming a partnership and for dividing the net income and net loss of a partnership. Objective

Click to edit Master title style 21 Organizing a Partnership Partners can invest both assets and liabilities in the partnership. Assets and liabilities are recorded at an agreed-upon value, normally fair market value. Contributions increase the partner’s capital account. Withdrawals decrease the partner’s capital account.

Click to edit Master title style 22 Forming a Partnership 12-2 Joseph Stevens and Earl Foster agree to combine their hardware businesses in a partnership. Each is to contribute certain amounts of cash and other assets. They also agree that the partnership is to assume the liabilities of the separate businesses.

Click to edit Master title style Stevens’ Transfer of Assets, Liability, and Equity 12-2 Apr.1Cash Accounts Receivable Merchandise Inventory Store Equipment Office Equipment Allowance for Doubtful Accounts Accounts Payable Joseph Stevens, Capital

Click to edit Master title style 24 A similar entry would record the assets contributed and the liabilities transferred by Foster. In each entry, the noncash assets are recorded at values agreed upon by the partners. These values normally represent current market values. 12-2

Click to edit Master title style Example Exercise Reese Howell contributed equipment, inventory, and $34,000 cash to a partnership. The equipment had a book value of $23,000 and market value of $29,000. The inventory had a book value of $60,000, but only had a market value of $15,000, due to obsolescence. The partnership also assumed a $12,000 note payable owed by Howell that was used originally to purchase the equipment. Provide the journal entry for Howell’s contribution to the partnership.

Click to edit Master title style For Practice: PE 12-1A, PE 12-1B Follow My Example Cash34,000 Inventory15,000 Equipment29,000 Notes Payable12,000 Reese Howell, Capital66,000

Click to edit Master title style 27 Dividing Income or Loss In the absence of an agreement, the Uniform Partnership Act says that the income or loss is shared equally by the partners. Three frequently used methods to divide income or loss are: –A stated ratio –The ratio of capital balances –Salary and interest allowances and any remainder in a fixed ratio. Let’s look at each of these methods!

Click to edit Master title style 28 Allocation on Stated Ratios Prepare the closing entry for Income Summary that will allocate the income to the partners based on their agreement. Greene and Redd agree to a three-fourths, one- fourth allocation of partnership income and loss, respectively. For 2008, net income is $60,000.

Click to edit Master title style 29 Allocation on Stated Ratios Greene and Redd agree to a three-fourths, one- fourth allocation of partnership income and loss, respectively. For 2008, net income is $60,000. Greene: $60,000 ( 3 / 4 ) = $45,000 Redd: $60,000 ( 1 / 4 ) = $15,000

Click to edit Master title style 30 Allocation on Capital Balances Greene’s capital balance is $80,000 and Redd’s capital balance is $40,000. The partnership agreement calls for income or loss to be allocated based on the relative capital balances. Net income for 2008 is $60,000. Prepare the closing entry for Income Summary that will allocate the income to the partners based on their agreement.

Click to edit Master title style 31 Allocation on Capital Balances Greene: $60,000 ( $80,000 / $120,000 ) = $40,000 Redd: $60,000 ( $40,000 / $120,000 ) = $20,000 Greene’s capital balance is $80,000 and Redd’s capital balance is $40,000. The partnership agreement calls for income or loss to be allocated based on the relative capital balances. Net income for 2008 is $60,000.

Click to edit Master title style 32 Allocation on Services, Capital, and Stated Ratios Greene and Redd’s partnership agreement contains the following information: Greene receives $15,000 and Redd receives $10,000 as annual salaries. Each partner is allowed an annual interest allowance of 5% on the beginning-of-year capital balance. Any remaining balance of income or loss is allocated equally. Net income for 2008 is $60,000. What amount of the net income will be allocated to each partner based on their agreement?

Click to edit Master title style 33 Allocation on Services, Capital, and Stated Ratios If the allowances exceed net income, the deficit would be allocated equally, just as the excess is in the example above.

Click to edit Master title style 34 The partnership agreement of Jennifer Stone and Crystal Mills provides for Stone to receive a monthly allowance of $5,000 ($60,000 annually) and Mills is to receive $4,000 a month ($48,000 annually). If there is any remaining net income, it is to be divided equally. The firm had a net income of $150,000 for the year. Dividing Income—Services of Partners 12-2

Click to edit Master title style J. Stone C. Mills Total Annual salary allowance$60,000$48,000$108,000 Remaining income21,00021,00042,000 Division of net income$81,000$69,000$150, Division of Net Income to journal entry (Slide 24)

Click to edit Master title style The entry for dividing net income is as follows: Dec. 31Income Summary Jennifer Stone, Capital Crystal Mills, Capital

Click to edit Master title style Dividing Income—Services of Partners and Investments The partnership agreement for Stone and Mills divides income as follows: 1.Monthly salary allowance of $5,000 for Stone and $4,000 for Mills. 2.Interest of 12% on each partner’s capital balance on January 1. 3.If there is any remaining net income, it is to be divided equally between the partners.

Click to edit Master title style Division of Net Income Salary allowance$60,000$48,000$108,000 Interest allowance19,20014,40033, Net income of $150,000 is divided. J. Stone C. Mills Total

Click to edit Master title style Division of Net Income Salary allowance$60,000$48,000$108,000 Interest allowance19,20014,40033, % x Stone’s capital account balance on Jan. 1 of $160,000 J. Stone C. Mills Total Net income of $150,000 is divided.

Click to edit Master title style Division of Net Income J. Stone C. Mills Total Salary allowance$60,000$48,000$108,000 Interest allowance19,20014,40033, % x Mills’ capital account balance on Jan. 1 of $120,000 Net income of $150,000 is divided.

Click to edit Master title style Division of Net Income 12-2 J. Stone C. Mills Total Salary allowance$60,000$48,000$108,000 Interest allowance19,20014,40033,600 Remaining income4,2004,2008,400 Division of net income$83,400$66,600$150,000 Net income of $150,000 is divided.

Click to edit Master title style The entry for dividing net income is as follows: Dec. 31Income Summary Jennifer Stone, Capital Crystal Mills, Capital

Click to edit Master title style The entry for dividing net income is as follows: Dec. 31Income Summary Jennifer Stone, Member Equity Crystal Mills, Member Equity LLC Alternative Note the use of “Member Equity” instead of “Capital” for LLC.

Click to edit Master title style 44 Assume the same facts as before except that the net income is only $100, Dividing Income—Allowances Exceed Net Income

Click to edit Master title style Division of Net Income J. Stone C. Mills Total Salary allowance$60,000$48,000$108,000 Interest allowance 19,200 14,400 33,600 Total$79,200$62,400$141,600 Net income of $100,000 is divided. This amount exceeds net income by $41,600.

Click to edit Master title style Division of Net Income J. Stone C. Mills Total Salary allowance$60,000$48,000$108,000 Interest allowance 19,200 14,400 33,600 Total$79,200$62,400$141,600 Deduct excess of allowance over income 20,800 20,800 Net income$58,400$41,600$100,000 Net income of $100,000 is divided.

Click to edit Master title style Example Exercise Steve Prince and Chelsy Bennick formed a partnership, dividing income as follows: 1.Annual salary allowance to Prince of $42, Interest of 9% on each partner’s capital balance on January 1. 3.Any remaining net income divided equally. Prince and Bennick had $20,000 and $150,000 in their January 1 capital balances, respectively. Net income for the year was $240,000. How much net income should be distributed to Prince?

Click to edit Master title style For Practice: PE 12-2A, PE 12-2B Follow My Example Monthly salary$ 42,000 Interest (9% x $20,000)1,800 Remaining income 91,350* Total distributed to Prince$135,150 *($240,000 – $42,000 – $1,800 – $13,500) x 50%

Click to edit Master title style 49 Describe and illustrate the accounting for partner admission and withdrawal. Objective

Click to edit Master title style 50 Admission of a Partner When the makeup of the partnership changes, the partnership is dissolved. A new partnership may be immediately formed. New partner acquires partnership interest by: –Purchasing it from the other partners, or –Investing assets in the partnership. When the makeup of the partnership changes, the partnership is dissolved. A new partnership may be immediately formed. New partner acquires partnership interest by: –Purchasing it from the other partners, or –Investing assets in the partnership.

Click to edit Master title style 51 Purchase of Partnership Interest A new partner can purchase partnership interest directly from the existing partners. –The cash goes to the partners, not to the partnership. To become a partner, the new partner must be accepted by the current partners. A new partner can purchase partnership interest directly from the existing partners. –The cash goes to the partners, not to the partnership. To become a partner, the new partner must be accepted by the current partners.

Click to edit Master title style 52 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 the current partners by: 12-3 Admitting a Partner

Click to edit Master title style 53 Redd agrees to sell Blue $10,000 of her partnership interest for $25,000. Purchase of Partnership Interest A new partnership agreement must be prepared that identifies the allowances and profit sharing basis.

Click to edit Master title style 54 Partners Tom Andrews and Nathan Bell have capital balances of $50,000 each. On June 1, each sells one-fifth of his equity to Joe Canter for $10,000 in cash Purchasing an Interest in a Partnership

Click to edit Master title style The only entry required in the partnership accounts is as follows: June 1Tom Andrews, Capital Nathan Bell, Capital Joe Canter, Capital

Click to edit Master title style The effect of the transaction on the partnership accounts is presented in the following diagram: Partnership Accounts Andrew, Capital 10,000 Bell, Capital 10,000 50,000 Carter, Capital 20,000 41

Click to edit Master title style LLC Alternative June 1Tom Andrew, Member Equity Nathan Bell, Member Equity Joe Canter, Member Equity

Click to edit Master title style Contributing 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.

Click to edit Master title style June 1Cash Sharon Nelson, Capital The entry to record this transaction is as follows:

Click to edit Master title style The effect of the transaction on the partnership accounts is presented in the following diagram: Partnership Accounts Nelson, Capital Lewis, Capital 35,000 Morton, Capital 25,000 Net Assets 60,000 20,000

Click to edit Master title style LLC Alternative June 1Cash Sharon Nelson, Member Equity

Click to edit Master title style Revaluation of Assets If the asset accounts do not reflect approximate current market values when a new partner is admitted, the accounts should be adjusted (increased or decreased) before the new partner is admitted.

Click to edit Master title style 63 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. 12-3

Click to edit Master title style June 1Merchandise Inventory Donald Lewis, Capital Gerald Morton, Capital Because the LLC alternative follows a pattern of replacing “Capital” with “Member Equity,” the LLC entry will not be shown again The revaluation is recorded as follows:

Click to edit Master title style Example Exercise Blake Nelson invested $45,000 in the Lawrence & Kerry partnership for ownership equity of $45,000. Prior to the investment land was revalued to a market value of $260,000 from a book value of $200,000. Lynne Lawrence and Tim Kerry share net income in a 1:2 ratio. a.Provide the journal entry for the revaluation of land. b.Provide the journal entry to admit Nelson.

Click to edit Master title style For Practice: PE 12-3A, PE 12-3B Follow My Example b.Cash45,000 Blake Nelson, Capital45,000 a.Land60,000 Lynne Lawrence, Capital20,000¹ Tim Kerry, Capital40,000² ¹ $60,000 x l/3 ² $60,000 x 2/3

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Click to edit Master title style 68 Bonus to Old or New Partners Bonus to Old Partners When the current value of a partnership is greater than the recorded amounts of equity, the old partners usually require a new partner to pay a bonus when joining. Bonus to New Partners The partnership may grant a bonus to a new partner if the business is in need of cash or if the new partner has exceptional talents.

Click to edit Master title style 69 On March 1, the partnership of Marsha Jenkins and Helen Kramer admit Alex Diaz as a new partner. The assets of the old partnership are adjusted to current market values and the resulting capital balances for Jenkins and Kramer are $20,000 and $24,000, respectively Partner Bonuses

Click to edit Master title style 70 Jenkins and Kramer agree to admit Diaz as a partner for $31,000. In return, Diaz will receive a one-third equity in the partnership and will share income and losses equally with Jenkins and Kramer. 12-3

Click to edit Master title style Equity of Jenkins$20,000 Equity of Kramer24,000 Diaz’s Contribution 31,000 Total equity after admitting Diaz$75,000 Diaz’s interest (1/3 x $75,000)$25,000 Diaz’s contribution$31,000 Diaz’s equity after admission 25,000 Bonus paid to Jenkins and Kramer$ 6,

Click to edit Master title style Mar.1Cash Alex Diaz, Capital Marsha Jenkins, Capital Helen Kramer, Capital The entry to record the admission of Diaz to the partnership is as follows: 12-3 $6,000/2

Click to edit Master title style 73 After adjusting the market values, the capital balance of Janice Cowen is $80,000 and the capital balance of Steve Dodd is $40,000. Ellen Chou receives a one-fourth interest in the partnership for a contribution of $30,000. Before admitting Chou, Cowen and Dodd shared net income using a 2:1 ratio Adjusting for New Partner’s Unique Qualities or Skills

Click to edit Master title style Equity of Cowen$ 80,000 Equity of Dodd40,000 Chou’s Contribution 30,000 Total equity after admitting Chou$150,000 Chou’s equity interest after admission x 25% Chou’s equity after admission$ 37,500 Chou’s contribution 30,000 Bonus paid to Chou$ 7,500 The bonus is computed as follows: 12-3

Click to edit Master title style June1Cash Janice Cowen, Capital Steve Dodd, Capital Ellen Chou, Capital The entry to record the bonus and admission of Chou to the partnership is as follows:

Click to edit Master title style The entry to record the bonus and admission of Chou to the partnership is as follows: June1Cash Janice Cowen, Capital Steve Dodd, Capital Ellen Chou, Capital /3 x $7,500

Click to edit Master title style The entry to record the bonus and admission of Chou to the partnership is as follows: June1Cash Janice Cowen, Capital Steve Dodd, Capital Ellen Chou, Capital /3 x $7,500

Click to edit Master title style 78 Withdrawal of a Partner A partner can withdraw in two ways: The partner can sell his/her partnership interest to another person. The partnership can distribute cash and/or other assets to the withdrawing partner. A partner can withdraw in two ways: The partner can sell his/her partnership interest to another person. The partnership can distribute cash and/or other assets to the withdrawing partner.

Click to edit Master title style 79 Withdrawal of a Partner Redd has a capital balance of $65,500. She decides to withdraw from the partnership and takes cash equal to her equity.

Click to edit Master title style Withdrawal of a Partner On June 1, the partnership of X, Y, and Z have capital balances of $50,000, $80,000, and $30,000, respectively. Z decides to retire from the partnership and sells his interest to Y for $35,000.

Click to edit Master title style The following entry is required to record Z selling his interest to Y. June1Z, Capital Y, Capital Transfer ownership from Z to Y. 63 The amount paid to Y by Z has no impact on the partnership’s accounting records.

Click to edit Master title style If Z had sold his interest directly to the partnership, both the assets and the owner’s equity of the partnership would have been reduced.

Click to edit Master title style Example Exercise Lowman has a capital balance of $45,000 after adjusting assets to fair market value. Conrad contributes $26,000 to receive a 30% interest in a new partnership with Lowman. Determine the amount and recipient of the partner bonus.

Click to edit Master title style For Practice: PE 12-4A, PE 12-4B Follow My Example Equity of Lowman$45,000 Conrad contribution 26,000 Total equity after admitting Conrad$71,000 Conrad’s equity interest x 30% Conrad’s equity after admission$21,300 Conrad’s contribution$26,000 Conrad’s equity after admission 21,300 Bonus paid to Lowman$ 4,700

Click to edit Master title style 85 Describe and illustrate the accounting for liquidating a partnership. Objective

Click to edit Master title style 86 When a partnership goes out of business, the winding-up process is called the liquidation of a partnership Liquidating Partnerships

Click to edit Master title style Liquidation Process 1.Sell the partnership assets. This step is called realization. 2.Distribute any gains or losses from realization to the partners based upon their income- sharing ratio. 3.Pay the claims of creditors using the cash from step 1 realization. 4.After satisfying the creditors, distribute the remaining cash to the partners based on the balances in their capital accounts.

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Click to edit Master title style 89 Cash$11,000 Noncash Assets64,000 Liabilities$ 9,000 Jean Farley, Capital22,000 Brad Greene, Capital22,000 Alice Hall, Capital 22,000 Total$75,000$75, Liquidation Process Farley, Greene, and Hall share income and losses in a ratio of 5:3:2. On April 9, after discontinuing operations, the firm had the following trial balance.

Click to edit Master title style 90 Between April 10 and April 30, 2006, Farley, Greene, and Hall sell all noncash assets for $72,000. Thus, a gain of $8,000 ($72,000 – $64,000) is realized Liquidation Process

Click to edit Master title style Gain on Realization $8,000 gain

Click to edit Master title style Cash Noncash Assets Gain on Realization Step 1: Sale of assets Entries to Record the Steps in the Liquidation Process

Click to edit Master title style Gain on Realization Jean Farley, Capital Brad Greene, Capital Alice Hall, Capital Step 2: Division of gain Entries to Record the Steps in the Liquidation Process

Click to edit Master title style Liabilities Cash Step 3: Payment of liabilities Entries to Record the Steps in the Liquidation Process

Click to edit Master title style Jean Farley, Capital Brad Greene, Capital Alice Hall, Capital Cash Step 4: Distribution of cash to partners Entries to Record the Steps in the Liquidation Process

Click to edit Master title style 96 Farley, Greene, and Hall sell all noncash assets for $44,000. A loss of $20,000 ($64,000 – $44,000) is realized Loss on Realization

Click to edit Master title style Cash Loss on Realization Noncash Assets Step 1: Sale of assets Entries to Record the Steps in the Liquidation Process

Click to edit Master title style Loss on Realization 80 $20,000 loss

Click to edit Master title style Jean Farley, Capital Brad Greene, Capital Alice Hall, Capital Loss on Realization Step 2: Division of loss Entries to Record the Steps in the Liquidation Process

Click to edit Master title style Liabilities Cash Step 3: Payment of liabilities Entries to Record the Steps in the Liquidation Process

Click to edit Master title style Jean Farley, Capital Brad Greene, Capital Alice Hall, Capital Cash Step 4: Distribution of cash to partners: Entries to Record the Steps in the Liquidation Process

Click to edit Master title style Example Exercise Prior to liquidating their partnership, Todd and Gentry had capital accounts of $50,000 and $100,000, respectively. The partnership assets were sold for $220,000. The partnership had $20,000 of liabilities. Todd and Gentry share income and losses equally. Determine the amount received by Gentry as a final distribution from liquidation of the partnership.

Click to edit Master title style For Practice: PE 12-5A, PE 12-5B Follow My Example Gentry’s equity prior to liquidation$100,000 Realization of asset sale$220,000 Book value of assets ($50,000 + $100,000 + $20,000) 170,000 Gain on liquidation$50,000 Gentry’s share of gain (50% x $50,000)25,000 Gentry’s cash distribution$125,000

Click to edit Master title style Loss on Realization—Capital Deficiency Farley, Green, and Hall sell all of the noncash assets for $10,000. A loss of $54,000 ($64,000 – $10,000) is realized. The share of the loss allocated to Farley, $27,000 (50% of $54,000), exceeds the $22,000 balance in her capital account. Farley contributes $5,000 to the partnership.

Click to edit Master title style Loss on Realization— Capital Deficiency Farley’s contribution

Click to edit Master title style Cash Loss on Realization Noncash Assets Step 1: Sale of assets

Click to edit Master title style Joan Farley, Capital Brad Greene, Capital Alice Hall, Capital Loss on Realization Step: Payment of liabilities 12-4

Click to edit Master title style Step 3: Payment of liabilities 12-4 Liabilities Cash

Click to edit Master title style Receipt of deficiency Cash Jean Farley, Capital Having the partner with a deficiency pay all or part of the deficiency is not one of the four liquidation steps, but it should make the other partners happy.

Click to edit Master title style Loss on Realization— Capital Deficiency The remaining cash is distributed. Greene receives $5,800 and Hall receives $11,200.

Click to edit Master title style Brad Greene, Capital Alice Hall, Capital Cash Distribution of cash to partners:

Click to edit Master title style Example Exercise Prior to liquidating their partnership, Short and Bain had capital accounts of $20,000 and $80,000, respectively. The partnership assets were sold for $40,000. The partnership had no liabilities. Short and Bain share income and losses equally. a.Determine the amount of Short’s deficiency b.Determine the amount distributed to Bain assuming Short is unable to satisfy the deficiency.

Click to edit Master title style For Practice: PE 12-6A, PE 12-6B Follow My Example a.Short’s equity prior to liquidation$ 20,000 Realization of asset sales$ 40,000 Book value of assets 100,000 Loss on liquidation$ 60,000 Short’s share of loss (50% x $60,000) 30,000 Short’s deficiency$(10,000) b. $40,000 $80,000 – $30,000 share of loss – $10,000. Short’s deficiency also equals the amount realized from asset sales.

Click to edit Master title style 114 Prepare the statement of partnership equity. Objective

Click to edit Master title style Statement of Partnership Equity The change in the owners’ capital accounts for a period of time is reported in a statement of partnership equity.

Click to edit Master title style Statement of Partnership Equity

Click to edit Master title style Financial Analysis and Interpretation Washburn & Lovett, CPA’s had the following information for the last two years: Revenues$220,000,000$180,000,000 Number of employees1,6001,500 Revenue per employee, 2008 = $220,000,000 1,600 = $137,500 Revenue per employee, 2007 = $180,000,000 1,500 = $120,

Click to edit Master title style 118 Financial Analysis and Interpretation 12-5 The revenues per employee showed improvement in Thus, each employee is producing more revenues in 2008, than in 2007, which may indicate improved productivity. Overall, it appears the firm is properly managing the growth in staff.