Question

In the preparation of an advance plan for installment payments of cash to partners of a liquidating limited liability partnership, each partner's capital per unit of income sharing is computed by:

A) Dividing each partner's capital account balance by the percentage of that partner's capital account balance of total partners' capital
B) Multiplying each partner's capital account balance by the percentage of that partner's capital account balance of total partners' capital
C) Dividing the total of each partner's capital account, plus any loan receivable from the partnership and minus any loan payable to the partnership, by the partner's income-sharing ratio
D) Some other method

Answer 1

To compute each partner's capital per unit of income sharing in a liquidating limited liability partnership, divide the partner's capital account balance by their respective share (percentage) of the total partners' capital.

Step-by-step explanation:

In the context of a liquidating limited liability partnership, where partners are receiving installment payments based on their share of the partnership, the correct method for computing each partner's capital per unit of income sharing is by dividing each partner's capital account balance by the percentage of that partner's capital account balance of total partners' capital. This calculation ensures that each partner is paid an amount proportional to their stake in the partnership's capital.

A limited liability partnership offers protection to the partners' personal assets, limiting their exposure to the amount they have invested in the business. When it comes to liquidation, the partners' capital accounts and their share in income distribution are the primary basis for determining their final payouts. It is essential to conduct present value calculations to determine the worth of future amounts in present terms when planning these payments, particularly when interest rates are involved.