Financial accounting 12th warren duchac chapter 12

Accounting for Partnerships and Limited Liability Companies Chapter 12 Student Version These Theseslides slidesshould shouldbe beviewed viewedusing usingthe thepresentation presentation mode mode(click (clickthe the icon icontotostart startpresentation) presentation) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Prepared by: C Douglas Cloud Professor Emeritus of Accounting Pepperdine University Learning Objective 1 Describe the characteristics of proprietorships, partnerships, and limited liability companies © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Proprietorships A proprietorship is a company owned by a single individual Characteristics of proprietorships include the following:  Simple to form  No limitation on legal liability  Not taxable  Limited life  Limited ability to raise capital (funds) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Partnerships A partnership is an association of two or more persons who own and manage a business for profit Characteristics of a partnership include the following:  No limitation on legal liability  Not taxable  Limited life  Limited ability to raise capital (funds) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Partnerships A limited partnership is a unique legal form that provides partners who are not involved in the operations of the partnership with limited liability  There must be at least one general partner who operates the partnership  The remaining partners are considered limited partners © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Limited Liability Companies A limited liability company (LLC) is a form of legal entity that provides limited liability to its owners, but is treated as a partnership for tax purposes Characteristics include:  Moderately complex to form  Limited legal liability  Not taxable  Unlimited life  Moderate ability to raise capital (funds) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Learning Objectives Describe the characteristics of proprietorships, partnerships, and limited liability companies Describe and illustrate the accounting for forming a partnership and for dividing the net income and net loss of a partnership © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Forming a Partnership Joseph Stevens and Earl Foster, owners of competing hardware stores, agree to combine their businesses in a partnership Stevens agrees to contribute the following: © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Forming a Partnership The entry to record the assets and liabilities contributed by Stevens is as follows: The noncash assets are normally recorded at current market value © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Forming a Partnership If a limited liability company is formed, the following entry is made: © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 10 LO Liquidating Partnerships Division Division of of Loss Loss (Step (Step2) 2) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 40 LO Liquidating Partnerships Payment Paymentof of Liabilities Liabilities (Step (Step3) 3) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Liquidating Partnerships Distribution Distribution of of Cash Cash to to Partners Partners (Step (Step4) 4) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 42 LO Loss on Realization—Capital Deficiency The share of a loss on realization may be greater than the balance in a partner’s capital account The resulting debit balance in the capital account is called a 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 © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 43 LO Loss on Realization—Capital Deficiency Sale Sale of of Assets Assets (Step (Step1) 1) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 44 LO Loss on Realization—Capital Deficiency Division Division of of Loss Loss (Step (Step2) 2) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 45 LO Loss on Realization—Capital Deficiency Payment Paymentof of Liabilities Liabilities (Step (Step3) 3) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Liquidating Partnerships Receipt Receipt of of Deficiency Deficiency (Step (Step4) 4) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Liquidating Partnerships Distribution Distribution of of Cash Cash to toPartners Partners (Step (Step4) 4) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Learning Objective Describe the characteristics of proprietorships, partnerships, and limited liability companies Describe and illustrate the accounting for forming a partnership and for dividing the net income and net loss of a partnership Describe and illustrate the accounting for partner admission and withdrawal Describe and illustrate the accounting for liquidating a partnership Prepare the statement of partnership equity © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 49 LO Statement of Partnership Equity The changes in the partners’ capital accounts for a period of time are reported in a statement of partnership equity The statement of members’ equity for an LLC is similar to that of a partnership It reports the changes in member equity for a period © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Learning Objectives Describe the characteristics of proprietorships, partnerships, and limited liability companies Describe and illustrate the accounting for forming a partnership and for dividing the net income and net loss of a partnership Describe and illustrate the accounting for partner admission and withdrawal Describe and illustrate the accounting for liquidating a partnership Prepare the statement of partnership equity Analyze and interpret employee efficiency © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 51 LO Revenue per Employee Revenue per employee is a measure of the efficiency of the business in generating revenues Revenue per Employee = Revenue Number of Employees © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Revenue per Employee 2013 Revenues $180,000,000 Number of employees 1,500 Revenue per employee, 2013 Revenue per employee, 2012 2012 $220,000,000 1,600 = $220,000,000 1,600 = $137,500 = $180,000,000 1,500 = $120,000 © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Accounting for Partnerships and Limited Liability Companies The End Student Version Prepared by: C Douglas Cloud Professor Emeritus of Accounting Pepperdine University © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use ... companies Describe and illustrate the accounting for forming a partnership and for dividing the net income and net loss of a partnership Describe and illustrate the accounting for partner admission... companies Describe and illustrate the accounting for forming a partnership and for dividing the net income and net loss of a partnership Describe and illustrate the accounting for partner admission... Partner salary allowances: $5,000 monthly for Stone and $4,000 monthly for Mills  Interest of 12% on each partner’s capital balance as of January  Any remaining income divided equally © 2011