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1、Chapter 13Partnerships and Limited Liability CorporationsAccounting, 21st EditionWarren Reeve FessPowerPoint Presentation by Douglas CloudProfessor Emeritus of AccountingPepperdine University Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved. Task Force Image Gallery

2、clip art included in this electronic presentation is used with the permission of NVTech Inc.1Some of the action has been automated, so click the mouse when you see this lightning bolt in the lower right-hand corner of the screen. You can point and click anywhere on the screen.21.Describe the basic c

3、haracteristics of proprietorships, corporations, partnerships, and limited liability corporation.2.Describe and illustrate the equity reporting for proprietorships, corporations, partnerships, and limited liability corporations.3.Describe and illustrate the accounting for forming a partnership.Objec

4、tivesAfter studying this chapter, you should be able to:34.Describe and illustrate the accounting for dividing the net income and net loss of a partnership.Objectives5.Describe and illustrate the accounting for the dissolution of a partnership.6.Describe and illustrate the accounting for liquidation

5、 of a partnership.7.Describe the lifecycle of a business, including the role of venture capitalists, initial public offerings, and underwriters.4Alternative Forms of Business EntitiesAdvantagesEase in organizingLow cost of organizingDisadvantagesDifficulty in raising large amounts of capitalUnlimite

6、d liabilityJoes Review of Chapter 1A proprietorship is owned by one individual. 5Alternative Forms of Business EntitiesA corporation is organized under state or federal statutes as a separate legal entity.AdvantagesThe ability to obtain large amounts of resources by issuing stocksLimited liability f

7、or the ownersDisadvantagesDouble taxationMore complexity and regulationsJ & M, Inc. 6Alternative Forms of Business EntitiesJ & M, Inc. A business may organize as an S Corporation. The IRS allows income to pass through the S Corporation to the individual stockholder without the corporation having to

8、pay tax on the income.7Alternative Forms of Business EntitiesA partnership is an association of two or more individuals. AdvantagesMore financial resources than a proprietorshipAdditional management skillsJoe and Martys 8Alternative Forms of Business EntitiesDisadvantagesLimited lifeUnlimited liabil

9、ityCo-ownership of partnership propertyMutual agencyJoe and Martys A partnership is an association of two or more individuals. 9Alternative Forms of Business EntitiesAn important right of partners is to participate in the income of the partnership. 10Alternative Forms of Business EntitiesEach partne

10、r must report their share of partnership income on their personal tax returns.11Alternative Forms of Business EntitiesA partnership is created by a contract, known as the partnership agreement or articles of partnership.12Alternative Forms of Business EntitiesA variant of the regular partnership is

11、a limited partnership.This form of partnership allows partners that are not involved in the operations of the partnership to retain limited liability.13Limited Liability CorporationsCombines the advantages of the corporate and partnership forms.Owners are termed “members” rather than “partners.”Memb

12、ers must create an operating agreement.LLC may elect to be treated as a partnership for tax purposes.Continued14Limited Liability CorporationsUnless specified in the operating agreement, LLCs have a limited life.Members may elect operating the LLC as a “member managed” entity.LLC provides limited li

13、ability for the members.LLCs must file “articles of organization” with state governmental authorities.15Comparison of Alternate Entity CharacteristicsEase of FormationProprietorshipSimpleCorporationComplexPartnershipSimpleLLCModerate16Comparison of Alternate Entity CharacteristicsLegal LiabilityProp

14、rietorshipNo limitationCorporationLimited liabilityPartnershipNo limitationLLCLimited liability17Comparison of Alternate Entity CharacteristicsTaxationProprietorshipNontaxable entityCorporationTaxable entityPartnershipNontaxable entityLLCNontaxable entity by election18Comparison of Alternate Entity

15、CharacteristicsLimitation on Life of EntityProprietorshipYesCorporationNoPartnershipYesLLCYes19Comparison of Alternate Entity CharacteristicsEase of Raising CapitalProprietorshipDifficultCorporationEasierPartnershipModerateLLCModerate20Equity Reporting for Alternative Entity FormsProprietorshipsProp

16、rietorships use a capital account to record investments by the owner of the business.Withdrawals by the owner are recorded in the owners drawing account.21Equity Reporting for Alternative Entity FormsProprietorshipsGreene LandscapesStatement of Owners EquityFor the year ended December 31, 2006Duncan

17、 Greene, capital, Dec. 31, 2005$345,000Net income$79,000Less withdrawals 35,000Increase in owners equity 44,000Duncan Greene, capital, Dec. 31, 2006$389,00022Equity Reporting for Alternative Entity FormsCorporationsInvestments by stockholders in the business use capital stock accounts, such as Commo

18、n Stock and Preferred Stock.Dividends to owners (stockholders) are recorded by a debit to Retained Earnings.23Equity Reporting for Alternative Entity FormsCorporations24Equity Reporting for Alternative Entity FormsPartnerships and Limited Liability CorporationsInvestments and withdrawals for partner

19、ships is similar to proprietorships, except there is a capital and drawing account for each partner.Limited liability corporations are similar to a partnership except that each owner is referred to as “member.”25Equity Reporting for Alternative Entity FormsPartnerships26 Forming a PartnershipJoseph

20、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.1Cash7 200 00Accounts Receivable16 300 00 Merchandise Inventory28 700 00 Store Equipment5 400 00Office Equipment1 500 00All

21、owance for Doubtful Accounts1 500 00Accounts Payable2 600 00Joseph Stevens, Capital55 000 00Stevens Transfer of Assets, Liability, and Equity27 Forming a PartnershipA similar entry would be made for the assets, liabilities, and equity of Earl Foster. 28 Forming a PartnershipAssume that instead of fo

22、rming a partnership, the two men formed a limited liability corporation. Apr.1Cash7 200 00Accounts Receivable16 300 00Merchandise Inventory28 700 00Store Equipment5 400 00Office Equipment1 500 00Allowance for Doubtful Accounts1 500 00Accounts Payable2 600 00Joseph Stevens, Member Equity55 000 00Stev

23、ens Transfer of Assets, Liability, and Equity29 Dividing IncomeServices of PartnersThe 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 n

24、et income of $75,000. J. Stone C. Mills TotalSalary allowance$30,000$24,000$54,000Remaining income10,50010,50021,000Division of net income$40,500$34,500$75,00030 Dividing IncomeServices of PartnersDec.31Income Summary75 000 00Jennifer Stone, Capital40 500 00Crystal Mills, Capital 34 500 0031 Dividin

25、g IncomeLLC AlternativeDec.31Income Summary75 000 00Jennifer Stone, Member Equity40 500 00Crystal Mills, Member Equity 34 500 0032 Dividing IncomeServices of Partners and InvestmentsThe partnership agreement of Jennifer Stone and Crystal Mills provides for Stone to have an annual salary allowance of

26、 $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. The firm had a net income of $75,000. 33 Dividing IncomeServices of Partners and Investments J. Stone C. Mills TotalSalary allowance$30,000$24

27、,000$54,000Interest allowance9,6007,20016,800Division of net income$41,700$33,300$75,000$80,000 x 12%$60,000 x 12%Remaining income2,1002,1004,20034 Dividing IncomeServices of PartnersDec.31Income Summary75 000 00Jennifer Stone, Capital41 700 00Crystal Mills, Capital 33 300 0035 Dividing IncomeLLC Al

28、ternativeDec.31Income Summary75 000 00Jennifer Stone, Member Equity41 700 00Crystal Mills, Member Equity 33 300 0036 Dividing IncomeAllowances Exceed Net IncomeAssume the same facts as before except that the net income is only $50,000. J. Stone C. Mills TotalSalary allowance$30,000$24,000$54,000Inte

29、rest allowance 9,600 7,200 16,800 Total$39,600$31,200$70,800Division of net income$29,200$20,800$50,000Deduct excess equally10,40010,40020,80037Partnership DissolutionAdmitting a Partner1.Purchasing an interest from one or more of the current partners.2.Contributing assets to the partnership.A perso

30、n may be admitted to a partnership only with the consent of all partners by:38Partnership DissolutionPurchasing an Interest in a PartnershipPartners 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.39Pa

31、rtnership DissolutionPurchasing an Interest in a PartnershipJune1Tom Andrews, Capital10 000 00Nathan Bell, Capital10 000 00Joe Canter, Capital20 000 00For a LLC, members equity accounts would have been used rather than capital accounts.40Partnership DissolutionContributing Assets to a PartnershipPar

32、tners 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.41Partnership DissolutionContributing Assets to a PartnershipJune1Cash20 000 00Sharon Nelson, Capital2

33、0 000 00For a LLC, Sharon Nelson, Member Equity would have been credited. 42Partnership DissolutionRevaluation of AssetsPartners 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 valu

34、e is $17,000. The partners share net income equally.43Partnership DissolutionJune1Merchandise Inventory3 000 00 Donald Lewis, Capital1 500 00Gerald Morton, Capital1 500 00Because the LLC alternative follows a pattern of replacing “Capital” with “Member Equity,” the LLC entry will not be shown again.

35、Revaluation of Assets44Partnership DissolutionPartner BonusesOn 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 a fair market values and the resulting capital balances for Jenkins and Kramer are $30,000 a

36、nd $24,000, respectively.45Partnership DissolutionPartner BonusesJenkins 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.46Partnership DissolutionPartner Bonus

37、es from New PartnerEquity of Jenkins$20,000Equity of Kramer24,000Diazs Contribution 31,000Total equity after admitting Diaz$75,000Diazs interest (1/3 x $75,000)$25,000Diazs contribution$31,000Diazs equity after admission 25,000Bonus paid to Jenkins and Kramer$ 6,00047Partnership DissolutionPartner B

38、onusesMar.1Cash31 000 00 Alex Diaz, Capital25 000 00Marsha Jenkins, Capital3 000 00Helen Kramer, Capital3 000 00$6000 248Partnership DissolutionPartner BonusesAfter adjusting the market values, the capital balance of Janice Cowen is $80,000 and the capital balance of Steve Dodd is $40,000. Ellen Chu

39、a receives a one-fourth interest in the partnership for a contribution of $30,000. Before admitting Chua, Cowen and Dodd shared net income using a 2 to 1 ratio. 49Partnership DissolutionPartner Bonuses to New PartnerEquity of Cowen$ 80,000Equity of Dodd40,000Chuas Contribution 30,000Total equity aft

40、er admitting Chua$150,000Chuas interest (1/4 x $150,000)$ 37,500Chuas contribution$30,000Chuas equity after admission 37,500Bonus paid to Chua$ 7,50050Partnership DissolutionPartner BonusesMar.1Cash30 000 00 Janice Cowen, Capital5 000 00Steve Dodd, Capital2 500 00Ellen Chua, Capital37 500 001/3 x $7

41、,5002/3 x $7,50051Liquidating PartnershipsWhen a partnership goes out of business, the winding-up process is called the liquidation of a partnership.52Liquidating PartnershipsThe sale of the assets is called realization.53Liquidating PartnershipsFarley, Greene, and Hall share income and losses in a

42、ratio of 5:3:2. On April 9, after discontinuing operations, the firm had the following trial balance.Cash$11,000Noncash Assets64,000Liabilities$ 9,000Jean Farley, Capital22,000Brad Greene, Capital22,000Alice Hall, Capital 22,000 Total$75,000$75,00054Liquidating PartnershipsBetween April 10 and April

43、 30, 2006, Farley, Greene, and Hall sell all noncash assets for $72,000.Gain on Realization55Liquidating PartnershipsBalance before realization$11,000$64,000$9,000Left side of statement Noncash Cash Assets LiabilitiesSale of assets and divisionof gain+72,000-64,00056Liquidating PartnershipsBalance b

44、efore realization$22,000$22,000$22,000Right side of statement Farley Greene Hall Capital Capital CapitalSale of assets and divisionof gain+4,000+2,400+1,600$8,000 gain x .50$8,000 gain x .30$8,000 gain x .2057Liquidating PartnershipsBalance before realization$11,000$64,000$9,000Left side of statemen

45、t Noncash Cash Assets LiabilitiesSale of assets and divisionof gain+72,00064,000 Balance after realization$83,000$0$9,00058Liquidating PartnershipsBalance before realization$22,000$22,000$22,000Right side of statement Farley Greene Hall Capital Capital CapitalSale of assets and divisionof gain +4,00

46、0 +2,400 +1,600Balance after realization$26,000$24,400$23,60059Liquidating PartnershipsThe partnerships liabilities are paid, $9,000.Gain on Realization60Liquidating PartnershipsLeft side of statement Noncash Cash Assets LiabilitiesBalance before realization$11,000$64,000$9,000Sale of assets and div

47、isionof gain+72,00064,000 Balance after realization$83,000$ 0$9,000Payment of liabilities9,0009,00061Liquidating PartnershipsLeft side of statement Noncash Cash Assets LiabilitiesBalance before realization$11,000$64,000$9,000Sale of assets and divisionof gain+72,00064,000 Balance after realization$8

48、3,000$ 0$9,000Payment of liabilities 9,000 9,000Balance after payment $74,000$ 0$ 062Liquidating PartnershipsThe remaining cash, $74,000, is paid to each partner in accordance with the partners capital balance.Gain on Realization63Liquidating PartnershipsLeft side of statement Noncash Cash Assets Li

49、abilitiesBalance before realization$11,000$64,000$9,000Sale of assets and divisionof gain+72,00064,000 Balance after realization$83,000$ 0$9,000Payment of liabilities 9,000 9,000Balance after payment $74,000$ 0$ 0Partners cash distributed74,000 Final balances$ 0$ 0$ 064Liquidating PartnershipsRight

50、side of statementBalance before realization$22,000$22,000$22,000 Farley Greene Hall Capital Capital CapitalSale of assets and divisionof gain +4,000 +2,400 +1,600Balance after realization$26,000$24,400$23,600Payment of liabilities Balance after payment$26,000$24,400$23,600Partners cash distributed26

51、,00024,40023,600Final balances$ 0$ 0$ 065Liquidating PartnershipsSale of AssetsApr.30Cash72 000 00 Noncash Assets64 000 00Gain on Realization8 000 0066Liquidating PartnershipsDivision of GainApr.30Gain on Realization8 000 00 Jean Farley, Capital4 000 00Brad Greene, Capital2 400 00Alice Hall, Capital

52、1 600 0067Liquidating PartnershipsPayment of LiabilitiesApr.30Liabilities9 000 00 Cash9 000 0068Liquidating PartnershipsDistribution of Cash to PartnersApr.30Jean Farley, Capital26 000 00Brad Greene, Capital24 400 00Alice Hall, Capital23 600 00Cash74 000 0069Liquidating PartnershipsBetween April 10

53、and April 30, 2006, Farley, Greene, and Hall sell all noncash assets for $44,000.Loss on Realization70Liquidating PartnershipsBalance before realization$11,000$64,000$9,000Left side of statement Noncash Cash Assets LiabilitiesSale of assets and divisionof loss+44,00064,00071Liquidating PartnershipsB

54、alance before realization$22,000$22,000$22,000Right side of statement Farley Greene Hall Capital Capital CapitalSale of assets and divisionof loss10,0006,0004,000$20,000 loss x .50$20,000 loss x .30$20,000 loss x .2072Liquidating PartnershipsBalance before realization$11,000$64,000$9,000Left side of

55、 statement Noncash Cash Assets LiabilitiesSale of assets and divisionof loss+44,00064,000 Balance after realization$55,000$0$9,00073Liquidating PartnershipsBalance before realization$22,000$22,000$22,000Right side of statement Farley Greene Hall Capital Capital CapitalSale of assets and divisionof l

56、oss 10,000 6,000 4,000Balance after realization$12,000$16,000$18,00074Liquidating PartnershipsThe liabilities of the partnership are paid, $9,000.Loss on Realization75Liquidating PartnershipsLeft side of statement Noncash Cash Assets LiabilitiesBalance before realization$11,000$64,000$9,000Sale of a

57、ssets and divisionof loss+44,00064,000 Balance after realization$55,000$ 0$9,000Payment of liabilities9,0009,00076Liquidating PartnershipsLeft side of statement Noncash Cash Assets LiabilitiesBalance before realization$11,000$64,000$9,000Sale of assets and divisionof loss+44,00064,000 Balance after

58、realization$55,000$ 0$9,000Payment of liabilities 9,000 9,000Balance after payment $46,000$ 0$ 077Liquidating PartnershipsThe remaining cash, $46,000, is paid to each partner in accordance with the partners capital balance.Loss on Realization78Liquidating PartnershipsLeft side of statement Noncash Cash Assets LiabilitiesBalance before realization$11,000$64,000$9,000Sale of assets and divisionof loss+44,00064,000 Balance after realization$55,000$ 0$9,000Payme