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Multi-member LLC buys out member

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21-Apr-2014 4:01pm
Hi all, let's assume the following facts for an issue I'm facing with a client:

A multi-member LLC has 10 members (taxed as partnership)
All members have equal capital accounts of $300,000
Let's assume inside basis = outside basis for the purpose of this question.
Member 1 decides to sell his shares back to the LLC for $400,000. This amount was determined based on a business valuation and equals fair market value.
Three members loan the LLC $400,000.
LLC then buys out the member.

Where does the excess $100,000 go in the general ledger as a debit?
Currently I have:
1. DR cash $400k for loan and CR $400k Loan Payable
2. Dr Member Capital $300k (reducing it to zero), DR ???? $100k, CR Cash $400k.

22-Apr-2014 3:06pm
WA State
A part of this excess will be a 734(b) asset created with this buyout.
What you need to do is identify the allocation of the purchase price among the assets of the partnership.
A portion of this may end up being things like A/R, inventory, etc., which affects the tax consequence of buyer/seller.
For simplicity, let's assume it's all allocated to goodwill (probably not actually the case).
In that case, you have a new $100K goodwill asset to amortize.

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