The statement of members’ equity for Bonanza, LLC, is shown below.

The statement of members’ equity for Bonanza, LLC, is shown below.

















Bonanza, LLC
Statement of Members’ Equity
For the Years Ended December 31, 2014 and 2015
Idaho
Properties,
LLC,
Member
Equity
Silver
Streams,
LLC,
Member
Equity
Thomas
Dunn,
Member
Equity
Total
Members’
Equity
Members’ equity, January 1, 2014 $273,000 $307,000 $ 580,000
Net income 57,000 133,000 190,000
Members’ equity, December 31, 2014 $330,000 $440,000 $ 770,000
Dunn contribution, January 1, 2015 3,000 7,000 $220,000 230,000
Net income 62,500 137,500 50,000 250,000
Less member withdrawals (32,000) (48,000) (40,000) (120,000)
Members’ equity, December 31, 2015 $363,500 $536,500 $230,000 $1,130,000


a. What was the income-sharing ratio in 2014?
b. What was the income-sharing ratio in 2015?
c. How much cash did Thomas Dunn contribute to Bonanza, LLC, for his interest?
d. Why do the member equity accounts of Idaho Properties, LLC, and Silver Streams, LLC, have positive entries for Thomas Dunn’s contribution?
e. What percentage interest of Bonanza did Thomas Dunn acquire?
f. Why are withdrawals less than net income?


Answer:












































a. The income-sharing ratio is determined by dividing the net income
for each member by the total net income. Thus, in 2014, the incomesharing
ratio is as follows:
$57,000
Idaho Properties, LLC: = 30%
$190,000
$133,000
Silver Streams, LLC: = 70%
$190,000
Or a 3:7 ratio
b. Following the same procedure as in (a):
$62,500
Idaho Properties, LLC: = 25%
$250,000
$137,500
Silver Streams, LLC: = 55%
$250,000
$50,000
Thomas Dunn: = 20%
$250,000
c. Thomas Dunn provided a $230,000 cash contribution to the business.
The amount credited to his member equity account is this amount
less a $10,000 bonus paid to the other two members, or $220,000.
d. The positive entries to Idaho Properties and Silver Streams are the
result of a bonus paid by Thomas Dunn.
e. Thomas Dunn acquired a 22% interest in the business on January 1,
2015, computed as follows:
Thomas Dunn, member equity…………………………… $ 220,000
Idaho Properties, LLC, member equity………………… 333,000
Silver Streams, LLC, member equity…………………… 447,000
Total…………………………………………………………… $1,000,000
Thomas’ ownership interest after admission
($220,000 ÷ $1,000,000)………………………………… 22%
f. Withdrawals need not be the same as the income credited to the members’ equity accounts. Withdrawals will be less than the amounts credited when the members wish to retain capital in the business to support business growth or otherwise strengthen the business.

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.

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, 2014, are as follows:










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.

Superior Cleaning Services, LLC, provides cleaning services for office buildings. The firm has 10 members in the LLC, which did not change

Superior Cleaning Services, LLC, provides cleaning services for office buildings. The firm has 10 members in the LLC, which did not change between 2014 and 2015. During 2015, the business terminated two commercial contracts. The following revenue and employee information is provided:








2015 2014
Revenues (in thousands) $16,200 $18,400
Number of employees (excluding members) 150 200



a. For 2015 and 2014, determine the revenue per employee (excluding members).
b. Interpret the trend between the two years.


Answer:










$16,200,000
a. Revenue per employee, 2015:
Revenue per employee, 2014:
150
$18,400,000
200
= $108,000
= $92,000



b. Revenues decreased between the two years; however, the number of employees has decreased at a faster rate. Thus, the revenue per employee increased from $92,000 in 2014 to $108,000 in 2015. This indicates that the efficiency of the firm has increased in the two years, even though revenues declined. This is likely the result of the termination of the two contracts. That is, the large decrease in the employment base is the likely result of the reduction in business. Thus, the business was able to reduce the workforce faster than the revenue base. This suggests that the contracts were not very efficient from a revenue per employee perspective, and were thus likely good candidates for termination.