Lester $ 49,000
Torres 61,000
Hearst 27,000
Total $137,000
In winding up operations during the month of August, noncash assets with a book value of $146,000 are sold for $158,000, and liabilities of $35,000 are satisfied. Prior to realization, Arcadia Sales has a cash balance of $26,000.
a. Prepare a statement of LLC liquidation.
b. Provide the journal entry for the final cash distribution to members.
c. What is the role of the income- and loss-sharing ratio in liquidating a LLC?
Answer:
a. ARCADIA SALES, LLC
Statement of LLC Liquidation
For the Period August 1–31, 2014
Noncash
Member Equity
Lester Torres Hearst
Cash + Assets = Liabilities + (2/5) + (2/5) + (1/5)
Balances before realization $ 26,000 $146,000 $35,000 $49,000 $61,000 $27,000
Sale of assets and division of gain +158,000 –146,000 — +4,800 +4,800 +2,400
Balances after realization $184,000 $ 0 $35,000 $53,800 $65,800 $29,400
Payment of liabilities –35,000 — –35,000 — — —
Balances after payment of liabilities $149,000 $ 0 $ 0 $53,800 $65,800 $29,400
Cash distributed to members –149,000 — — –53,800 –65,800 –29,400
Final balances $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
b. Lester, Member Equity 53,800
Torres, Member Equity 65,800
Hearst, Member Equity 29,400
Cash 149,000
c. The income- and loss-sharing ratio is only used to distribute the gain or loss on the realization of asset sales. It is not used for the final distribution. The final distribution is based upon the credit balances in the member equity accounts after all gains and losses on realization have been divided and any partner deficiencies have been paid or allocated.