CHAPTER 13 Accounting for Partnerships and Limited Liability Corporations CLASS DISCUSSION QUESTIONS Proprietorship: Ease of formation Corporation: Limited liability to owners and ease of raising large amounts of equity capital Partnership: Expanded owner expertise and capital and ease of formation Limited liability corporation: Limited liability to owners The disadvantages of a partnership are 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 corporation Yes A partnership may incur losses in excess of the total investment of all partners The division of losses among the partners would be made according to their agreement In addition, because of the unlimited liability of each partner for partnership debts, a particular partner may actually lose a greater amount than his or her capital balance The partnership agreement (partnership) or operating agreement (LLC) establishes the income-sharing ratio among the partners (members), amounts to be invested, and buy-sell agreements between the partners (members) Equally No He would have to bear his share of losses In the absence of any agreement as to division of net income or net loss, his share would be one-third In addition, because of the unlimited liability of each partner, DiPano may lose more than onethird of the losses if one partner is unable to absorb his share of the losses The statement of stockholders’ equity discloses the material changes in each stockholders’ equity account, such as common stock, paid-in excess of par value, retained earnings, and treasury stock, for a specified period The statement of partners’ equity (for a partnership) and statement of members’ equity (for a LLC) both show the material changes in owner’s equity for each ownership person or class for a specified period The delivery equipment should be recorded at $15,000, the valuation agreed upon by the partners 10 The accounts receivable should be recorded by a debit of $200,000 to Accounts Receivable and a credit of $20,000 to Allowance for Doubtful Accounts 11 Yes Partnership net income is divided according to the income-sharing ratio, regardless of the amount of the withdrawals by the partners Therefore, it is very likely that the partners’ monthly withdrawals from a partnership will not exactly equal their shares of net income 12 a Debit the partner’s drawing account and credit Cash b Debit the income summary account for the amount of the net income and credit the partners’ capital accounts for their respective shares of the net income c No Payments to partners and the division of net income are separate The amount of one does not affect the amount of the other 13 a By purchase of an interest, the capital interest of the new partner is obtained from the old partner, and neither the total assets nor the total equity of the partnership are affected b By investment, both the total assets and the total equity of the partnership are increased 14 It is important to state all partnership assets in terms of current prices at the time of the admission of a new partner because failure to so might result in participation by the new partner in gains or losses attributable to the period prior to admission to the partnership To illustrate, assume that A and B share net income and net loss equally and operate a partnership that owns land recorded at and costing $20,000 C is 83 15 16 admitted to the partnership, and the three partners share in income equally The day after C is admitted to the partnership, the land is sold for $35,000 and, since the land was not revalued, C receives one-third distribution of the $15,000 gain In this case, C participates in the gain attributable to the period prior to admission to the partnership A new partner who is expected to improve the fortunes (income) of the partnership might be given equity in excess of the amount invested to join the partnership a Losses and gains on realization are divided among partners in the incomesharing ratio b Cash is distributed to the partners according to their ownership claims, as indicated by the credit balances in their capital accounts, after taking into consideration the potential deficiencies that may result from the inability to collect from a deficient partner 17 84 The different advantages of each organizational form are related to the natural life cycle of a business For example, during the initial stages of a business, ease of formation may be paramount, which favors a proprietorship As a business grows and succeeds, the need for expertise and capital grows, giving rise to partnerships If limited liability becomes paramount to outside investors, such as venture capitalists, then the business may take the form of a limited liability corporation Lastly, a business may wish to obtain more extensive sources of capital, such as from the investing public In this case, the corporate form is best suited for raising public capital with the help of an underwriter through an initial public offering EXERCISES Ex 13–1 TENDER HEART GREETING CARDS INC Statement of Stockholders’ Equity For the Year Ended December 31, 2006 Paid-In Common Capital in Stock, Excess Treasury Retained $2 Par of Par Stock Earnings Balance, Jan 1, 2006 Issued 50,000 shares of common stock Purchased 10,000 shares as treasury stock Net income Dividends Balance, Dec 31, 2006 $500,000 $400,000 100,000 45,000 — $1,975,000 145,000 $(25,000) $600,000 $1,075,000 Total $445,000 $(25,000) (25,000) 240,000 240,000 (50,000) (50,000) $1,265,000 $2,285,000 Ex 13–2 Cash Accounts Receivable Merchandise Inventory Equipment Allowance for Doubtful Accounts Todd Jost, Capital 6,000 91,000 76,500 90,000 8,000 255,500 Ex 13–3 a b c d e Moore Knell $60,000 80,000 57,600 55,000 61,000 $60,000 40,000 62,400 65,000 59,000 Details Moore Knell Total a Net income (1:1) $60,000 $60,000 $120,000 b Net income (2:1) $80,000 $40,000 $120,000 c Interest allowance Remaining income (2:3) Net income $24,000 33,600 $57,600 $12,000 50,400 $62,400 $ 36,000 84,000 $120,000 d Salary allowance Remaining income (1:1) Net income $40,000 15,000 $55,000 $50,000 15,000 $65,000 $ 90,000 30,000 $120,000 e Interest allowance Salary allowance Excess of allowances over income (1:1) Net income $24,000 40,000 (3,000) $61,000 $12,000 50,000 (3,000) $59,000 $ 36,000 90,000 (6,000) $120,000 Ex 13–4 Moore a b c d e $ 90,000 120,000 81,600 85,000 91,000 Knell $90,000 60,000 98,400 95,000 89,000 Details Moore Knell Total a Net income (1:1) $ 90,000 $90,000 $180,000 b Net income (2:1) $120,000 $60,000 $180,000 c Interest allowance Remaining income (2:3) Net income $ 24,000 57,600 $ 81,600 $12,000 86,400 $98,400 $ 36,000 144,000 $180,000 d Salary allowance Remaining income (1:1) Net income $ 40,000 45,000 $ 85,000 $50,000 45,000 $95,000 $ 90,000 90,000 $180,000 e Interest allowance Salary allowance Remaining income (1:1) Net income $ 24,000 40,000 27,000 $ 91,000 $12,000 50,000 27,000 $89,000 $ 36,000 90,000 54,000 $180,000 Ex 13–5 Salary allowances Remainder ($120,000)(net loss, $20,000 plus $100,000 salary allowances) divided equally Net loss Jane Williams Osaka Y Total $ 40,000 $ 60,000 (60,000) $ (20,000) $ (60,000) $ 100,000 (120,000) $ (20,000) Ex 13–6 The partners can divide net income in any ratio that they wish However, in the absence of an agreement, net income is divided equally between the partners Therefore, Jim’s conclusion was correct, but for the wrong reasons In addition, note that the salary allowances have no impact on the division of income Ex 13–7 a Net income: $106,000 Salary allowance Remaining income Net income Bennings Hodges Total $32,000 12,600 $44,600 $53,000 8,400 $61,400 $ 85,000 21,000 $106,000 Bennings remaining income: ($106,000 – $85,000) × (3/5) Hodges remaining income: ($106,000 – $85,000) × (2/5) b (1) Income Summary L Bennings, Member Equity L Hodges, Member Equity 106,000 44,600 61,400 (2) L Bennings, Member Equity L Hodges, Member Equity L Bennings, Drawing L Hodges, Drawing 32,000 53,000 32,000 53,000 Note: The reduction in members’ equity from withdrawals would be disclosed on the statement of members’ equity but does not affect the allocation of net income in part (a) of this exercise Ex 13–8 a Salary allowance Interest allowance (8%) Total allowances Remaining income (4:3:3) Net income WXXY Radio Partners John Higgins Daily Call Newspaper, LLC Total $ 12,800 $ 12,800 217,840 $230,640 $125,000 7,600 $132,600 163,380 $295,980 $ 20,000 $ 20,000 163,380 $183,380 $125,000 40,400 $165,400 544,600 $710,000 b Dec 31, 2006 Dec 31, 2006 Income Summary WXXY Radio Partners, Member Equity John Higgins, Member Equity Daily Call Newspaper, LLC, Member Equity 710,000 WXXY Radio Partners, Member Equity John Higgins, Member Equity Daily Call Newspaper, LLC, Member Equity WXXY Radio Partners, Drawing John Higgins, Drawing Daily Call Newspaper, LLC, Drawing 12,800 132,600 230,640 295,980 183,380 20,000 12,800 132,600 20,000 c MEDIA PROPERTIES, LLC Statement of Members’ Equity For the Year Ended December 31, 2006 WXXY Radio Partners Members' equity, January 1, 2006 $160,000 Additonal investment during the year 50,000 $210,000 Net income for the year 230,640 $440,640 Withdrawals during the year 12,800 Members' equity, December 31, 2006 $427,840 Daily Call John Newspaper, Higgins LLC Total $ 95,000 $250,000 $ 505,000 50,000 $ 95,000 $250,000 $ 555,000 295,980 183,380 710,000 $390,980 $433,380 $1,265,000 132,600 20,000 165,400 $258,380 $413,380 $1,099,600 Ex 13–9 a (1) (2) Income Summary Walt Bigney, Capital Dan Harris, Capital 160,000 Walt Bigney, Capital Dan Harris, Capital Walt Bigney, Drawing Dan Harris, Drawing 72,000 84,000 80,000 80,000 72,000 84,000 b BIGNEY AND HARRIS Statement of Partners’ Equity For the Year Ended December 31, 2006 Capital, January 1, 2006 Additional investment during the year Net income for the year Withdrawals during the year Capital, December 31, 2006 Walt Bigney Dan Harris Total $ 80,000 10,000 $ 90,000 80,000 $170,000 72,000 $ 98,000 $ 95,000 — $ 95,000 80,000 $175,000 84,000 $ 91,000 $175,000 10,000 $185,000 160,000 $345,000 156,000 $189,000 Ex 13–10 a Jan 31 Partner Drawing Cash 20,000,000 Income Summary Partner Capital 200,000,000 Partner Capital Partner Drawing 240,000,000* 20,000,000 b Dec 31 200,000,000 c Dec 31 240,000,000 *12 months × 20,000,000 d Dec 31 Cash Partner Capital 40,000,000 40,000,000 During the year, the partners withdrew 40 million pounds more than what was earned This represents a distribution of capital beyond the current year’s earnings According to the operating agreement, this difference must be returned to the partnership Ex 13–11 a and b Kirk, Capital McCoy, Capital 30,000 30,000 Ex 13–12 a $811,000 ($1,840,000,000 ÷ 2,270), rounded b $132,000 ($300,000,000 ÷ 2,270), rounded c A new partner might contribute more than $132,000 because of goodwill attributable to the firm’s reputation, future income potential, a strong client base, etc Ex 13–13 a b (1) Susan Yu, Capital Ben Hardy, Capital Ken Mahl 25,000 18,000 (2) Cash Jeff Wood, Capital 35,000 Susan Yu Ben Hardy Ken Mahl Jeff Wood 75,000 72,000 43,000 35,000 43,000 35,000 Ex 13–14 a b Cash Cecil Jacobs, Capital Maria Estaban, Capital Lee White, Capital 45,000 5,000 5,000 Cecil Jacobs Maria Estaban Lee White 56,000 54,000 55,000 55,000 Prob 13–3B DIXON AND FAWLER Income Statement For the Year Ended December 31, 2006 Professional fees Operating expenses: Salary expense Depreciation expense—building Property tax expense Heating and lighting expense Supplies expense Depreciation expense—office equipment Miscellaneous expense Total operating expenses Net income Peter Dixon Division of net income: Salary allowance Interest allowance Remaining income Net income *$75,000 × 12% **($55,000 – $5,000) × 12% $ 30,000 9,000* 41,000 $ 80,000 $285,650 $80,500 10,500 8,000 7,900 2,850 2,800 6,100 118,650 $167,000 May Fawler Total $ 40,000 $ 70,000 6,000** 15,000 41,000 82,000 $ 87,000 $ 167,000 DIXON AND FAWLER Statement of Partners’ Equity For the Year Ended December 31, 2006 Capital, January 1, 2006 Additional investment during the year Net income for the year Withdrawals during the year Capital, December 31, 2006 Peter Dixon May Fawler Total $ 75,000 — $ 75,000 80,000 $ 155,000 60,000 $ 95,000 $ 50,000 5,000 $ 55,000 87,000 $ 142,000 75,000 $ 67,000 $ 125,000 5,000 $ 130,000 167,000 $ 297,000 135,000 $ 162,000 Prob 13–3B Concluded DIXON AND FAWLER Balance Sheet December 31, 2006 Assets Current assets: Cash Accounts receivable Supplies Total current assets Plant assets: Land Building Less accumulated depreciation Office equipment Less accumulated depreciation Total plant assets Total assets $ 22,000 38,900 1,900 $ 62,800 $ 25,000 $ 130,000 69,200 60,800 $ 39,000 21,500 17,500 Liabilities Current liabilities: Accounts payable Salaries payable Total liabilities 103,300 $ 166,100 $ 2,100 2,000 $ 4,100 Partners’ Equity Peter Dixon, capital May Fawler, capital Total partners’ equity Total liabilities and partners’ equity $ 95,000 67,000 162,000 $ 166,100 Prob 13–4B Apr 30 Asset Revaluations Accounts Receivable Allowance for Doubtful Accounts *[($22,500 – $1,900) × 5%] – $550 2,380 30 Merchandise Inventory Asset Revaluations 2,500 30 Accumulated Depreciation—Equipment Equipment Asset Revaluations 65,000 30 Asset Revaluations Tom Denney, Capital Cheryl Burks, Capital 20,120 Cheryl Burks, Capital Sara Wold, Capital 20,000 Cash Sara Wold, Capital 20,000 May 1,900 480* 2,500 45,000 20,000 10,060 10,060 20,000 20,000 Prob 13–4B Concluded DENNEY, BURKS, AND WOLD Balance Sheet May 1, 2006 Assets Current assets: Cash Accounts receivable Less allowance for doubtful accounts Merchandise inventory Prepaid insurance Total current assets Plant assets: Equipment Total assets $ 27,900 $ 20,600 1,030 Liabilities Current liabilities: Accounts payable Notes payable Total liabilities 19,570 53,100 1,650 $ 102,220 100,000 $ 202,220 $ 12,100 10,000 $ 22,100 Partners’ Equity Tom Denney, capital Cheryl Burks, capital Sara Wold, capital Total partners’ equity Total liabilities and partners’ equity $ 90,060 50,060 40,000 180,120 $ 202,220 Prob 13–5B BOOTH, OWEN, AND RAMARIZ Statement of Partnership Liquidation For Period May 3–29, 2006 Capital Cash Balances before realization Sale of assets and division of loss Balances after realization Receipt of deficiency Balances Payment of liabilities Balances after payment of liabilities Cash distributed to partners Final balances Noncash + Assets = Liabilities + Booth (50%) Owen (25%) + Ramariz + (25%) $ 1,900 $ 62,000 $ 30,000 $ 20,000 $ 3,900 $ 10,000 + $ + $ – $ – $ 26,000 27,900 5,100 33,000 30,000 3,000 3,000 – 62,000 $ — $ — $ — $ — 30,000 — 30,000 30,000 — – 18,000 $ 2,000 — $ 2,000 — $ 2,000 – 2,000 $ – $ + $ 9,000 5,100 (Dr.) 5,100 — — – $ $ $ – $ $ $ $ $ $ – $ 9,000 1,000 — 1,000 — 1,000 1,000 The $5,100 deficiency of Owen would be divided between the other partners, Booth and Ramariz, in their income-sharing ratio (2:1 respectively) Therefore, Booth would absorb 2/3 of the $5,100 deficiency, or $3,400, and Ramariz would absorb 1/3 of the $5,100 deficiency, or $1,700 Prob 13–6B EWING, JOHNSON, AND LANDRY Statement of Partnership Liquidation For Period October 1–30, 2006 Capital Cash 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 partners Final balances + Noncash Assets = Liabilities + Ewing (2/5) + Johnson (2/5) + Landry (1/5) $ 20,000 $ 250,000 $ 50,000 $ 100,000 $ 90,000 $ 30,000 + 330,000 $ 350,000 – 50,000 – 250,000 $ — — $ 50,000 – 50,000 + 32,000 $ 132,000 — + 32,000 $ 122,000 — + 16,000 $ 46,000 — $ 300,000 – 300,000 $ $ $ $ 132,000 – 132,000 $ $ 122,000 – 122,000 $ $ 46,000 – 46,000 $ 0 — $ — $ Prob 13–6B Continued EWING, JOHNSON, AND LANDRY Statement of Partnership Liquidation For Period October 1–30, 2006 Capital Cash Balances before realization Sale of assets and division of loss Balances after realization Payment of liabilities Balances after payment of liabilities Distribution of cash to partners Final balances + Noncash Assets = Liabilities + Ewing (2/5) + Johnson (2/5) + Landry (1/5) $ 20,000 $ 250,000 $ 50,000 $ 100,000 $ 90,000 $ 30,000 + 120,000 $ 140,000 – 50,000 – 250,000 $ — — $ 50,000 – 50,000 – $ 52,000 48,000 — – 52,000 $ 38,000 — – 26,000 $ 4,000 — $ 90,000 – 90,000 $ $ $ $ – $ 48,000 48,000 $ 38,000 – 38,000 $ $ – $ — $ — $ 4,000 4,000 Prob 13–6B Concluded EWING, JOHNSON, AND LANDRY Statement of Partnership Liquidation For Period October 1–30, 2006 Capital Cash Balances before realization Sale of assets and division of loss Balances after realization Payment of liabilities Balances after payment of liabilities Receipt of deficiency Balances Distribution of cash to partners Final balances Noncash + Assets = Liabilities + Ewing (2/5) Johnson + (2/5) Landry + (1/5) $ 20,000 $ 250,000 $ 50,000 $ 100,000 $ 90,000 $ 30,000 + 50,000 $ 70,000 – 50,000 – 250,000 $ — — $ 50,000 – 50,000 – 80,000 $ 20,000 — – 80,000 $ 10,000 — – 40,000 $ 10,000 (Dr.) — $ + $ – $ $ $ $ $ $ 20,000 — $ 20,000 – 20,000 $ $ 10,000 — $ 10,000 – 10,000 $ $ 10,000 (Dr.) + 10,000 $ — $ 20,000 10,000 30,000 30,000 — $ — — $ 0 — SPECIAL ACTIVITIES Activity 13–1 This scenario highlights one of the problems that arises in partnerships: attempting to align contribution with income division Often disagreements are based upon honest differences of opinion However, in this scenario, there is evidence that Harrison was acting unethically Harrison apparently made no mention of his plans to “scale back” once the partnership was consummated As a result, Miller agreed to an equal division of income based on the assumption that Harrison’s past efforts would project into the future, while in fact, Harrison had no intention of this As a result, Miller is now providing twice the effort, while receiving the same income as Harrison This is clearly not sustainable in the long term Harrison does not appear to be concerned about this inequity Thus, the evidence points to some duplicity on Harrison’s part Essentially, he knows that he is riding on Miller’s effort and had planned it that way Miller could respond to this situation by either withdrawing from the partnership or changing the partnership agreement One possible change would be to provide a partner salary based on the amount of patient billings This salary would be highly associated with the amount of revenue brought into the partnership, thus avoiding disputes associated with unequal contribution to the firm Activity 13–2 A good solution to this problem would be to divide income in three steps: Provide interest on each partner’s capital balance Provide a monthly salary for each partner Divide the remainder according to a partnership formula With this approach, the return on capital and effort will be separately calculated in the income division formula before applying the percentage formula Thus, Adair will receive a large interest distribution based on the large capital balance, while Fontana should receive a large salary distribution based on the larger service contribution The return on capital and salary allowances should be based on prevailing market rates If both partners are pleased with their return on capital and effort, then the remaining income could be divided equally among them Activity 13–3 a PricewaterhouseCoopers Deloitte & Touche Ernst & Young KPMG $2,893,6781 2,685,064 2,319,028 2,155,676 Revenue per partner for PricewaterhouseCoopers = Revenue per staff for PricewaterhouseCoopers $240,8082 299,433 323,336 303,794 $8,056,000,000 = $2,893,678 2,784 $8,056,000,000 = $240,808 33,454 b The amount earned per partner is highest with PricewaterhouseCoopers at $2,893,678 and lowest with KPMG at $2,155,676 However, the amount of revenue earned per professional staff member is only $240,808 for PricewaterhouseCoopers, while KPMG is higher, at $303,794 This unusual result suggests that PricewaterhouseCoopers has fewer partners but a greater number of staff to support their business than is the case for KPMG The same pattern appears to hold for Deloitte & Touche and Ernst & Young as well Interestingly, these results may be driven by the difference in the revenue mix between the two groups of firms Both PricewaterhouseCoopers and Deloitte & Touche have significant revenues from management consulting operations, while Ernst & Young and KPMG have sold these operations and no longer perform consulting It is possible that consulting requires fewer partners and more professional staff per revenue dollar earned than tax and accounting services Note: The Sarbanes-Oxley Act has prohibited audit clients from using management consulting services from the same firm As a result, public accounting firms are divesting their consulting operations Activity 13–4 a A key distinction between a partnership and a corporation is that all of the partners (owners) are not only investors but also work in the partnership The partners provide both capital and “sweat equity.” This is a key distinction that provides insight about the performance of the firm The expected income from the partnership is given as the country average, or $230,000 The following is what each partner actually earned from the partnership Allocation of partnership income ($35,000,000 ÷ 200 partners) = $175,000 per partner Note that the partners’ earnings are less than what might be expected from the expected, or average, income Thus, the partnership has performed below the partners’ expectations b The income statement indicates some large litigation losses These losses appear to be the major reason for the partnership’s poor performance Without the losses, the partnership net income allocation would have been $225,000 [($35,000,000 + $10,000,000) ÷ 200] The $225,000 is much closer to the market-based compensation of $230,000 per year In addition, the staff professional salaries of $80,000 per year ($120,000,000 ÷ 1,500) is slightly higher than average ($75,000) This would also have led to a smaller income to the partners than might have been expected Activity 13–5 Many of the Wall Street analysts during the late 1990s and early 2000s were not behaving like independent analysts Rather, they were supporting the investment bankers in their firm The investment bankers earned huge fees for selling new issues of common stock to the public The research analysts curried favor with small emerging companies by providing glowing recommendations The analysts were actively involved in, and received bonuses for, soliciting new investment banking clients These recommendations, in turn, supported initial public offerings of common stock After the common stock was issued, highly favorable analysis caused the stock prices to increase In a sense, the analysts were acting like advertisers by promoting a company, rather than critically analyzing it The Merrill e-mails have caused major criticism and launched reform in the investment banking business Blodget was released from Merrill Lynch At this writing, major firms and analysts are facing both civil suits and potential criminal actions Some have argued that nothing really needs to be done, because the marketplace will make the necessary adjustments Namely, analysts from investment banking firms will no longer be trusted, giving rise to a new class of independent analysts that is separate from investment banking These analysts would earn fees for their unbiased advice This adjustment is already taking place to some degree However, many are calling for additional reforms Such reforms include separating investment banking from research by preventing analysts from engaging in, or being compensated by, the investment banking function Under this scenario, the research analysts would not receive bonuses based on investment banking business, nor would they be involved in investment banking solicitation The analyst would have no direct responsibility nor be under the authority of investment banking Some are calling for additional regulation of the analyst community in order to monitor this separation Activity 13–6 a Omidyar incorporated the business in order to likely accomplish two major objectives First, incorporation limits his liability to his investment in the company Second, incorporation eases raising additional capital through shares of stock It is likely that eBay’s stunning growth would require additional sources of capital, thus favoring the corporate form b Benchmark’s assumed proceeds after IPO (3,000,000 shares × $18.00) Benchmark’s initial investment Assumed profit from sale after IPO $54,000,000 3,000,000 $51,000,000 This would represent a return of 1,700% in approximately one year c The underwriters’ discount is their compensation, or $4,410,000 Shown as follows: Discount Number of shares issued Underwriters’ compensation $1.26 ì 3,500,000* $ 4,410,000 *$63,000,000 ữ $18 Investment banking is known to be a very profitable industry when there are many IPO’s and other capital market transactions Note: Goldman Sach’s was the lead underwriter for this IPO d Percent of voting shares received by public shareholders: 3,500,000 = 8.8% 39,739,076 Shares issued to the public: 3,500,000 (of which 10,725 shares were from an existing shareholder exiting the investment through the IPO) Shares outstanding after IPO: 39,739,076 (from prospectus) Activity 13–6 Concluded e Percent of shareholders’ equity provided by public shareholders: $58,410,463 = 86.6% $67,410,463 Shareholders’ equity prior to the IPO Proceeds to the company from IPO Total shareholders’ equity after IPO $ 9,000,000 58,410,463 $67,410,463 Thus, the public shareholders have 8.8% of the common stock (d), yet have contributed 86.6% of the capital This result is typical for a successful start-up company f Omidyar’s unrealized gain in 2003, when the stock price was $89 per share, would be calculated as follows: Number of shares held by Omidyar Market price in 2003 Total value of shares held Less initial investment Unrealized gain 14,700,000 × $89 $1,308,300,000 14,262 $1,308,285,738 Omidyar is a billionaire and has reaped the fruits of a very successful idea The eBay story shows how the capitalist system rewards new initiatives, businesses, and ideas ... 205,100 3,100 5,100 3,400 3,400 55,100 150,000 Ex 13 18 a The income-sharing ratio is determined by dividing the net income for each member by the total net income Thus, in 2005 the income-sharing... returned to the partnership Ex 13 11 a and b Kirk, Capital McCoy, Capital 30,000 30,000 Ex 13 12 a $811,000 ($1,840,000,000 ÷ 2,270), rounded b $132 ,000 ($300,000,000 ÷ 2,270),... partner might contribute more than $132 ,000 because of goodwill attributable to the firm’s reputation, future income potential, a strong client base, etc Ex 13 13 a b (1) Susan Yu, Capital