Student Version

1. Student Version • Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. • These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. • In addition, most text book exhibits have been removed as they are available in your text directly.

2. Accounting for Partnerships and Limited Liability Companies Chapter 12

3. Learning Objective 1 Describe the characteristics of proprietorships, partnerships, and limited liability companies

4. Four Most Common Legal Forms of Business • _____________________________ • _____________________________ • _____________________________ • _____________________________

5. Proprietorship • A _________________ is a company ________ by a single individual . • _________________ • _________________ • _________________ • _________________

6. ________________ • Characteristics of proprietorships include the following: • _________________ • _________________ • _________________ • _________________ • _________________

7. Partnerships • A ________ is an association of two or more ________ who ________ and ________ a business for profit. Characteristics of a ________ include the following: • Moderately complex to form • _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________

8. Partnerships • ________________________________________________ • ________________________________________________ • ________________________________________________ • ________________________________________________ • ________________________________________________

9. Partnerships • In addition to the characteristics listed on the previous slides, some unique aspects of partnerships are: • ________________________________________________ • ________________________________________________ • ________________________________________________

10. Limited Liability Companies • A __________ __________ __________ (LLC) is a __________ of legal entity that provides __________ __________ to its __________ , but is treated as a __________ for __________ purposes. Characteristics include: • ________________________________________________ • ________________________________________________ • ________________________________________________ • ________________________________________________ • ________________________________________________

11. Learning Objective 2 Describe and illustrate the accounting for forming a partnership and for dividing the net income and net loss of a partnership

12. __________ 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:

13. Forming a Partnership • The entry to record the _______and _______ contributed by Stevens is as follows: • The _______ assets are normally recorded at _______ _______ _______ .

14. Forming a Partnership • If a _______ _______ company is formed, the following entry is made:

15. _______ _______ —Services of Partners • The partnership agreement of Jennifer Stone and Crystal Mills provides for Stone to receive a monthly salary allowance of $5,000 ($60,000 annually) and Mills to receive $4,000 a month ($48,000 annually). If there is any remaining net income, it is to be _______ _______ . Income and losses of the partnership would have been divided _______ if _______ _______ agreement existed or if the _______ agreement did _______ _______ how the division was to occur.

16. J. Stone C. Mills Total Annual salary allowance $ $ $ Dividing Income—Services of Partners • The firm had net income of $150,000 for the year. Stone _______ the net income as calculated below. 12 x _______ _______ _______ _______

17. Division of net income $ $ $ Dividing Income—Services of Partners • The firm had net income of $150,000 for the year. Stone shared the net income as calculated below. J. Stone C. Mills Total Annual salary allowance $60,000 $48,000 $108,000 Remaining income

18. Learning Objective 3 Describe and illustrate the accounting for partner admission and withdrawal

19. Admitting a Partner • A person may be _______ to a partnership by either of the following: • __________________________________________ • __________________________________________

20. Purchasing an _________ from ________ Partners • On June 1, Tom Andrews and Nathan Bell each _________ one-fifth of their partnership equity of Bring It Consulting to Joe Canter for $10,000 in cash. On June 1, the partnership has net assets of $100,000, and both existing partners have capital balances of $50,000 each.

21. Purchasing an Interest from Existing Partners • The only entry required in the partnership accounts is as follows: • For a limited liability company, the following entry is required:

22. Contributing _________ to a Partnership • Partners Tom Andrews and Nathan Bell each have capital balances of $50,000. On June 1, Joe Canter _________ $20,000 cash to Bring It Consulting for ownership equity of $20,000.

23. Contributing Assets to a Partnership • The entry to record this transaction is as follows: • For a limited liability company, the following entry is required:

24. Revaluation of Assets • If the partnership’s asset accounts _________ _________ _________ approximate current market values when a new partner is admitted, the accounts should be adjusted (increased or decreased) before the new partner is admitted.

25. Revaluation of Assets • Partners Andrews and Bell each have capital balances of $50,000. The balance in Merchandise Inventory is $14,000, and the current replacement value is $17,000. The partners share net income equally.

26. Revaluation of Assets • The entry to record this transaction is as follows: • For a limited liability company, the following entry is required:

27. Partner Bonuses

28. Withdrawal of a Partner • A partner may _________ or _________ from a partnership. In such cases, the withdrawing partner’s _________ is normally sold to the: • _____________________________________ • _____________________________________

29. _________ of a Partner • If the existing partners purchase the _________ _________ interest, the _________ and _________ of the partnership interest is between the partners as _________ . The only entry is: • ______________________________________________ • ______________________________________________

30. Withdrawal of a Partner • If the partnership purchases the _________ _________ interest, the _________ and the _________ _________ of the partnership are reduced by the _________ _________.

31. Death of a Partner • When a partner _________ , the partnership accounts should be _________ as of the date of _________. The _________ _________ for the current period should then be determined and _________ among the partners’ _________ accounts.

32. Learning Objective 4 Describe and illustrate the accounting for liquidating a partnership

33. Liquidating Partnerships • When a partnership goes _________ of _________ , the winding-up process is called the _________of the partnership. • Although _________ refers to the _________ of liabilities, it includes the _________ winding-up process. • When the partnership goes _________ of _________ and the _________ operations are _________ , the accounts should be _________ and closed.

34. _________ Partnerships • In liquidation, _________ is _________ to _________ partner based on his or her final _________ _________ .

35. Liquidating Partnerships • Farley, Green, and Hall decide to liquidate their partnership. On April 9, after discontinuing business operations and closing the accounts, the following trial balance is prepared:

36. Gain on Realization • Farley, Green, and Hall share income and losses in a ratio of 5:3:2 (50%, 30%, 20%). • All noncash assets are sold in a single transaction for $72,000, resulting in a gain of $8,000. Partner capital accounts are credited $4,000, $2,400, and $1,600 to Farley, Green, and Hall, respectively. • Creditors are paid $9,000, and the remaining cash of $74,000 is distributed to the partners. • A ____________________________, which summarizes the liquidation process, is shown in Exhibit 5.

37. Gain on _________ Sale of _________ (Step 1)

38. Gain on Realization _______ of _____ (Step 2)

39. Gain on Realization _______ of _______ (Step 3)

40. Gain on Realization _______ of _______ to Partners (Step 4)

41. Loss on Realization—_______ _______ • The share of a loss on _______ may be _______ than the balance in a partner’s _______ account. The resulting _______ _______ in the _______ account is called a _______.

42. Partner Does Not Pay Deficiency • If Farley does not pay her _______ , the _______ would be _______ to Green and Hall based on their ______-_______ _______ of 3:2. The remaining cash would be distributed to Green and Hall.

43. Learning Objective 5 Prepare the statement of partnership equity

44. Statement of _______ _______ • The changes in the partners’ capital accounts for a period of time are reported in a _______ of _______ _______ . • The _______ of _______ _______ for an LLC is similar to that of a _______ . It reports the _______ in _______ _______ for a period.

45. Learning Objective 6 Analyze and interpret employee efficiency

46. Revenue per Employee = Revenue per Employee • _______ _______ _______ is a measure of the _______ of the _______ in _______ _______ .

47. Accounting for Partnerships and Limited Liability Companies The End