Lake-town has been mostly demolished because you angered the dragon, so we deserve some treasure!
I refuse to negotiate while the elvenking is still here!
Elvenking and Bard, Thorin will not change his mind, so take this Arkenstone and force him to make peace.
When Smaug was killed, he fell onto Lake-town, destroying it. Bard demands that Thorin give up some of the treasure, while Thorin does not want to talk with the Elvenking nearby, because he imprisoned him earlier on the journey (in the Mirkwood Forest). Either way, goblins and Wurgs have begun to siege the Lonely Mountain and the dwarves and elves and Lake-town folk must put their differences aside to take down this one enemy.
To force Thorin to make peace, Bilbo gives the Bard and Elvenking the Arkenstone to force Thorin into a deal in exchange for it. When they do, Bilbo admits that he gave the stone to the Bard and Thorin is furious. He trades the stone for Bilbo's portion of the treasure but also casts Bilbo out of the mountain.
In the Battle of Five Armies, the humans, elves, and dwarfs fought the goblins and Wurgs. The first side was victorious, but Thorin, Fili, and Kili all died in battle. On his deathbed, Thorin made amends with Bilbo, saying, "If more of us valued food and cheer and song above hoarded gold, it would be a merrier world." (Tolkien, 290)
After the battle, 1/14 of the treasure was spent to repair Lake-town. Bilbo got 2 small chests, which was more than enough for him. He returned to his old hobbit hole, but others now thought of him as a bit odd. Surprisingly, Bilbo did not care about this, but rather enjoyed it.