Question

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	$48,630
Torres	65,630
Hearst	26,190
Total	$140,450

In winding up operations during the month of August, noncash assets with a book value of $140,060 are sold for $152,400, and liabilities of $24,270 are satisfied. Prior to realization, Arcadia Sales has a cash balance of $24,660.

	Required:
a.	Prepare a statement of LLC liquidation.
b.	Provide the journal entry for the final cash distribution to members on August 31. Refer to the Chart of Accounts for exact wording of account titles.
c.	What is the role of the income- and loss-sharing ratio in liquidating a LLC?

Statement of LLC Liquidation

Shaded cells have feedback.

a. Prepare a statement of LLC liquidation. Refer to the list of Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter negative numbers (balance deficiencies, payments, cash distributions, divisions of loss), use a minus sign. If there is no amount to be reported for sale of assets, payment of liabilities, receipt of deficiency, or cash distribution rows, the cell can be left blank. However, in the balance rows, a balance of zero MUST be indicated by entering "0".

Score: 111/189

ARCADIA SALES, LLC

Statement of LLC Liquidation

For the Period August 1–31

1		Cash +	Noncash Assets =	Liabilities +	Member Equity, Lester (2/5) +	Member Equity, Torres (2/5) +	Member Equity, Hearst (1/5)
2	✔	✔	✔	✔	✔	✔	✔
3	✔	✔			✔	✔	✔
4	✔	✔				✔	✔
5	✔
6	✔					✔	✔
7	✔
8	✔

Answer 1

Solution:

PART A STATEMENT OF LLC LIQUIDATION

ARCADIA SALES ,LLC

  STATEMENT OF LLC Liquidation

  For the Period August 1-31

Particulars	Cash($)+	Non Cash Assets($) =	Liabilities($) +	Member Equity Lester($) (2/5)+	Member Equity Torres($) (2/5)+	Member Equity Hearst ($) (1/5)
Balances Before assets realization	24,660	140,060	24,270	48,630	65,630	26,190
Sale of Assets and Dividing the gain *	152,400	-140,060	-	4,936	4,936	2,468
Balances after asset realization	177,060	-	24,270	53,566	70,566	28,658
Settlement of Liabilities	-24,270	-	-24,270	-	-	-
Balance after settlement of Liabilities	152,790	-	-	53,566	70,566	28,658
Cash Distributed to Members	-152,790			-53,566	-70,566	-28,658
Final Balances	0	0	0	0	0	0

Working Notes

Gain on sale of Assets = $152,400-$140,060= $12,340.

Distribution of $ 12,340 in the ratio of 2:2:1 is made to respective member's accounts.

PART B

JOURNAL ENTRY FOR DISTRIBUTION OF CASH TO MEMBERS

  

PARTICULARS	DEBIT($)	CREDIT($)
MEMBER EQUITY-LESTER A/C Dr.	53,566
MEMBER EQUITY-TORRES A/C Dr.	70,566
MEMBER EQUITY-HEARST A/C Dr.	28,658
CASH A/c		152,790

PART C Role of Income and Loss sharing ratio

The Income and Loss sharing ratio is used only for distribution of Gain/loss on sale of assets, this ratio is not used for distribution of balance cash at the end. The final distribution is based upon the credit balances left in the respective account of members. The final credit balance in the members account is after all adjustments of Gain/loss on sale of assets .