Accounting, Warren, Reeve, Duchac CH 12 - solutions Essay

5116 Words Apr 12th, 2014 21 Pages
CHAPTER 12
ACCOUNTING FOR PARTNERSHIPS AND LIMITED LIABILITY COMPANIES

DISCUSSION QUESTIONS

1. a. Proprietorship: Ease of formation and nontaxable entity.

b. Partnership: Expanded owner expertise and capital, nontaxable entity, and moderate complexity of formation.

c. Limited liability company: Limited liability to owners, expanded access to capital, nontaxable entity, and moderate complexity of formation.

2. The disadvantages of a partnership are that its life is limited, each partner has unlimited liability, one partner can bind the partnership to contracts, and raising large amounts of capital is more difficult for a partnership than a limited liability company.

3. Yes. A partnership may incur losses in
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Barns’ equity prior to liquidation………………

$55,000
Realization of asset sales…………………………
$ 40,000

Book value of assets*…………………………… 160,000

Loss on liquidation………………………………
$(120,000)

Barns’ share of loss (50% × –$120,000)………

(60,000)
Barns’ deficiency…………………………………

$ (5,000)

* $105,000 + $55,000

b. $40,000. ($105,000 –

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