Question

Statement of LLC Liquidation

Lester, Torres, and Hearst are members of Arcadia Sales, LLC, sharing income and losses in the ratio of 2:2:1, respectively. The members decide to liquidate the limited liability company. The members' equity prior to liquidation and asset realization on August 1 are as follows:

Lester	$22,100
Torres	51,200
Hearst	31,800
Total	$105,100

In winding up operations during the month of August, noncash assets with a book value of $138,400 are sold for $171,600, and liabilities of $44,400 are satisfied. Prior to realization, Arcadia Sales has a cash balance of $11,100.

a. Prepare a statement of LLC liquidation. Enter any subtractions (balance deficiencies, payments, cash distributions, divisions of loss, sale of assets) as negative numbers using a minus sign. If an amount is zero, enter "0".

Arcadia Sales, LLC
Statement of LLC Liquidation
For the Period August 1-31
	Cash +	Noncash Assets =	Liabilities +	Member Equity Lester (2/5) +	Member Equity Torres (2/5) +	Member Equity Hearst (1/5)
Balances before realization	$	$	$	$	$	$
Sale of assets and division of gain	+			+	+	+
Balances after realization	$	$	$	$	$	$
Payment of liabilities
Balances after payment of liabilities	$	$	$	$	$	$
Distribution of cash to members
Final balances	$	$	$	$	$	$

b. Provide the journal entry for the final cash distribution to members. For a compound transaction, if an amount box does not require an entry, leave it blank.

c. What is the role of the income- and loss-sharing ratio in liquidating a LLC?

The income- and loss-sharing ratio is only used to   on the realization of asset sales. It   used for the final distribution.

Answer 1

Answer

• All working forms part of the answer
• Requirement ‘a’

Arcadia Sales, LLC
Statement of LLC Liquidation
For the Period August 1-31
	Cash +		Liabilities +	Member	Member	Member
				Equity	Equity	Equity
		Noncash		Lester (2/5) +	Torres (2/5) +	Hearst (1/5)
		Assets =
Balances before realization	$11,100	$138,400	$44,400	$22,100	$51,200	$31,800
Sale of assets and division of gain [gain = 171600 – 138400 = 33200]	$171,600	($138,400)		$13,280 [33200 x 2/5]	$13,280 [33200 x 2/5]	$6,640 [33200 x 1/5]
Balances after realization	$182,700	$0	$44,400	$35,380	$64,480	$38,440
Payment of liabilities	($44,400)		($44,400)
Balances after payment of liabilities	$138,300	$0	$0	$35,380	$64,480	$38,440
Distribution of cash to members	($138,300)	$0	$0	($35,380)	($64,480)	($38,440)
Final balances	$0	$0	$0	$0	$0	$0

• Requirement ‘b’

Accounts title	Debit	Credit
Capital, Lester	$35,380
Capital, Torres	$64,480
Capital, Hearst	$38,440
Cash		$138,300

• Requirement ‘c’

The income- and loss-sharing ratio is only used to  distribute gain or loss on the realization of asset sales. It  is not used for the final distribution.