Compare and contrast different ways in which a taxpayer triggersa realization event by disposing of an asset.
Compare and contrast different ways in which a taxpayer triggersa realization event by disposing of an asset.
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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. Themembers decide to liquidate the limited liability company. Themembers' equity prior to liquidation and asset realization onAugust 1 are as follows:
Lester | $27,900 |
Torres | 64,500 |
Hearst | 40,100 |
Total | $132,500 |
In winding up operations during the month of August, noncashassets with a book value of $174,200 are sold for $216,000, andliabilities of $58,200 are satisfied. Prior to realization, ArcadiaSales has a cash balance of $16,500.
a. Prepare a statement of LLC liquidation.Enter any subtractions (balance deficiencies, payments, cashdistributions, divisions of loss, sale of assets) as negativenumbers using a minus sign. If an amount is zero, enter "0".
Arcadia Sales, LLC | ||||||
Statement of LLC Liquidation | ||||||
Forthe 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 cashdistribution to members. For a compound transaction, if an amountbox does not require an entry, leave it blank.
Lester, Member Equity | |||
Torres, Member Equity | |||
Hearst, Member Equity | |||
Cash |
c. What is the role of the income- andloss-sharing ratio in liquidating a LLC?
The income- and loss-sharing ratio is only used to on therealization of asset sales. It used for the final distribution.