Ch 12 Accounting for Partnerships

Question 1

admission by investment

Answer 1

Admission of a partner by an investment of assets in the partnership. Both partnership net assets and total capital increase. (p. 647)

Question 2

admission of a new partner by purchase of a partner’s interest

Answer 2

Admission of a partner through a personal transaction between one or more existing partners and the new partner. It does not change total partnership assets or total capital. (p. 646)

Question 3

capital deficiency

Answer 3

A debit balance in a partner’s capital account after the allocation of a gain or loss on liquidation of a partnership. Capital deficiencies can be repaid or allocated among the remaining partners. (p. 655)

Question 4

Limited liability partnership (LLP)

Answer 4

A partnership in which partners have limited liability for other partners’ negligence. (p. 635)

Question 5

Limited partnership (LP)

Answer 5

A partnership in which one or more general partners have unlimited liability, and the other partners, known as limited partners, have limited liability for the obligations of the partnership. (p. 635)

Question 6

mutual agency

Answer 6

The concept that the action of any partners is binding on all other partners. (p. 635)

Question 7

no capital deficiency

Answer 7

A situation where all partners have credit balances after the allocation of a gain or a loss on liquidation of a partnership. (p. 655)

Question 8

partnership

Answer 8

An association of individuals who operate a business for profit. (p. 634)

Question 9

partnership agreement

Answer 9

A written contract that expresses the voluntary agreement of two or more individuals in a partnership. (p. 636)

Question 10

partnership dissolution

Answer 10

A change in the number of partners that dissolves (ends) the partnership. It does not necessarily end the business. (p. 634)

Question 11

partnership liquidation

Answer 11

An event that ends both the legal and economic life of a partnership. (p. 655)

Question 12

profit and loss ratio

Answer 12

The basis for dividing both profit and loss in a partnership. (p. 640)

Question 13

realization

Answer 13

The sale of noncash assets for cash on the liquidation of a partnership. (p. 655)

Question 14

statement of partners’ equity

Answer 14

The equity statement for a partnership that shows the changes in each partner’s capital balance, and in total partnership capital, during the year. (p. 645)

Question 15

withdrawal by payment from partners’ personal assets

Answer 15

Withdrawal of a partner by a personal transaction between partners. It does not change total partnership assets or total capital. (p. 651)

Question 16

withdrawal by payment from partnership assets

Answer 16

Withdrawal of a partner by a transaction that decreases both partnership net assets and total capital. (p. 652)