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acct 262 > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

what is a partnership

A

unincorporated with 2 or more people who pursue business profit and are co owners

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2
Q

characteristics of a partnership

A
  • limited life
  • taxation of partners
  • co-ownership of property
  • mutual agency
  • unlimited liability
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3
Q

what does business agreement include (7)

A
  1. name and contributions
  2. rights and dutes
  3. sharing profit/loss
  4. withdrawal provisions
  5. dispute procedures
  6. admission/withdrawal
  7. rights/ duties if someone dies
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4
Q

what are the 3 forms of partnerships

A
  1. general partnership
  2. limited partnership
  3. limited liability partnershiip
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5
Q

general partnership

A

each partner has unlimited liability for debts

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6
Q

limited partnership

A

at least one partner Is a GENERAL partner and they manage and have unlimited liability for debts. other partners are LIMITED partners, , they are only liable for the amount they invested

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7
Q

Limited Liability Partners

A
  • protect innocent partners from malpractice and negligence claims from acts of another partner
  • all partners are personally responsible for other partners debts
  • LLP- CPAs, lawyers, regulated industry with strict rules
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8
Q

advantages of a partnership

A
  • easy formation
  • low cost of start up
  • access to capital resources
  • more management talent
  • increase effectiveness from pooling talent
  • shared risk
  • less bureaucracy
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9
Q

disadvantages of a partnership

A
  • unlimited liability creates personal obligations
  • hard to find suitable partners
  • conflict
  • disagreement from dividend authority
  • legally minded without authority
  • limited life
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10
Q

what to do for accounting with partnerships

A
  • seperate capital and withdrawal account for each partner
  • profit/loss allocated based on agreement
  • partners can invest assets/ liabilities
  • assets invested are recorded at FAIR MARKET VALUE and liabilities at their transfer date
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11
Q

entry for investing capital

A

dr equip
dr cash
cr melanie capital

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12
Q

partner withdrawals

A

-not expensed–
dr Melanie withdrawals
cr cash

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13
Q

dividing profit / loss (3 ways)

A
  1. fractional basis
  2. ratio of capital investment
  3. allocated based on salary/ interest allowance/ remainder
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14
Q

fractional basis

A

two people share profit or loss from a fraction, say 2:1 would be one person gets 2/3 and the other 1/3

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15
Q

ratio of capital investment

A

share profit/ loss based on beginning capital investments.
1. make ratio for each person divide their investment by total invested in company to get fraction, then multiply fraction by profit or loss

dr income summary (it will have cr balance if profit)
Cr mel capital
Cr tan capital

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16
Q

allocated based salary, interest allowance, fixed ratio -table plus entry

A

make table table
mel tan balance
profit 90,000
salary allowance 10,000 30,000 (40,000)
interest allowance 7,000 8,000 (15,000)
35,000
remainder (split) 17,500 17,500 (35,000)
allocation 34,500 55,500 0

entry dr income summary 90,000
cr mel capital 34,500
cr tan capital 55,500

17
Q

how to do allocated summary/ interest allowance/ fixed ratio when there’s a loss

A

do everything with salary and interest allowance the same adding the negative values to the already negative balance which is a loss. then total that and split that ‘evening’ or on a ratio between the partners. some partners may still capital, of partners lose capital you debit their capital account

18
Q

two ways partners are admitted

A
  1. purchasing another partners interest

2. investing assets

19
Q

admission of partners by purchasing assets

A 
the purchase of the equity is a personal transaction of cash between the two people but for accounting purposes of the company you record the transfer of capital from one partner to the other 
dr mel capital 10
  cr tan capital 10 
*a new agreement is made 
* all other partners must accept
20
Q

admission of partner by investing assets

A

transaction between new partner and partnerships and it changes the overall equity
- partner invests amount and they get certain percentage of equity, it can be equal to , or more or less than their investment if its more then the partners get a bonus if its less then they get a bonus

21
Q

entry for investing assets when you invest more than equity share

A

dr cash
cr Mel capital
cr tan capital

22
Q

entry for investing assets when you invest less than your equity share

A

dr cash
Dr tan capital
cr mel capital

23
Q

2 ways partners can withdraw

A
  1. sell interest

2. receive assets from partnership in settlement for their equity– bonus/ no bonus/ bonus to u

24
Q

partnership bought out of equity and no bonus

A

dr mel capital 10

cr cash 10

25
Q

partner retired and is getting a buyout of 200,000 they have 150,000 worth of capital in their account

A

dr mel capital 150,000
dr tan capital 25,000
dr tanner capital 25,000
cr cash 200,000

26
Q

partner retired accepting buyout of 150,000 with 200,000 in their capital

A

the rest is allocated to the remaining partners as a bonus
Dr mel capital 200,000
cr cash 150,000
cr tan capital 50,000

acct 262 (8 decks)

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