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?

Chart of Accounts

CHART OF ACCOUNTS

Arcadia Sales, LLC

General Ledger

	ASSETS
110	Cash
111	Petty Cash
112	Accounts Receivable
113	Allowance for Doubtful Accounts
114	Interest Receivable
115	Notes Receivable
116	Inventory
117	Office Supplies
118	Store Supplies
119	Prepaid Insurance
120	Land
123	Equipment
124	Accumulated Depreciation-Equipment
129	Asset Revaluations
133	Patent

	LIABILITIES
210	Accounts Payable
211	Salaries Payable
213	Sales Tax Payable
214	Interest Payable
215	Notes Payable

	EQUITY
310	Lester, Member Equity
311	Lester, Drawing
312	Torres, Member Equity
313	Torres, Drawing
314	Hearst, Member Equity
315	Hearst, Drawing

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Merchandise Sold
520	Salaries Expense
521	Advertising Expense
522	Depreciation Expense-Equipment
523	Delivery Expense
524	Repairs Expense
529	Selling Expenses
531	Rent Expense
533	Insurance Expense
534	Office Supplies Expense
535	Store Supplies Expense
536	Credit Card Expense
537	Cash Short and Over
538	Bad Debt Expense
539	Miscellaneous Expense
710	Interest Expense

Statement of LLC Liquidation

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".

ARCADIA SALES, LLC

Statement of LLC Liquidation

For the Period August 131

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

Journal

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.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4

Final Question

c. What is the role of the income- and loss-sharing ratio in liquidating a LLC? Select the best answer to complete the two sentences below.

1. The income- and loss-sharing ratio is

a) never used in a Limited Liability Company liquidation.

b) only used to distribute the gain or loss on the realization of asset sales.

c) often used for the final distribution.

2. After all gains and losses on realization have been divided and any member deficiencies have been paid or allocated, the final distribution is based upon

a) the credit balances in the member equity accounts.

b) the income- and loss-sharing ratio.

c) the partners wishes.