Chapter 13- Partnerships Flashcards
What is the partnership act?
Gives basic rules for forming & operating a partnership
What is a partnership?
Two or more people who do business to make a profit
What is association of individuals?
Assigning roles and responsabilities to members of a partnership. Ex ownership of assets or to be sued
When is division of income determined?
When the partnership is formed
If no division of income is stated, how is income split among the partners?
Equally
What is the definition of mutual agency
When each partner acts for the partnership when doing business for the partnership and the action of one partner is binding on all other partners
What is co-ownership of property?
When assets are jointly owned by each partner
If the partnership is disolved, how are the partner’s claims on total assets determined?
By the balance in their capital accounts
What is limited life?
Any change in ownership will dissolve the partnership
What is unlimited liability?
Each partner is liable for the liabilities of the partnership. Creditors have first claim against the assets in the event of liquidation and if not enough assets to pay off liabilities then personal assets must be used
What is a limited partnership?
When those partners have limited liability therefore liability is limited to the amount of capital contributed
What are multidisciplinary practices?
When lawyers become partners with accoutants or other proffesionals
What is the issue of concern with multidisciplinary practices?
Conflict of interest & confidendiality
ex: accountants have public disclosure obligations but lawyers must keep clients’ info private
What are the advantages of a partnership?
Combines skills and resources of one or more people
Easy to form
Relatively free from government regulation
Decisions can be made quickly (no board of directors to consult)
What are the disadvantages of a partnership?
Mutual agency
Limited life
Unlimited liability (hard to raise large amounts of capital)
What basic info should be reported on the partnership agreement?
Name and location of the business
Purpose of the business
Date of inception (beginning)
What is the journal entry to record the capital investment of one partner when forming a partnership?
Cash
Equipment
Allowance for DA
Owner, Capital
What are the steps for the closing entries?
- Dr Revenue Cr Income summary
- Dr Income summary Cr Expenses
- Dr Income summary Cr Capital accts
- Dr Capital accts Cr Drawings
What does the table look like for distribution of net income or loss?
Partners A B C Total Salary Interest Remainder Total
What is the journal entry to transfer the share of net income/loss?
Income Summary
A, Capital
B, Capital
C, Capital
What is the journal entry to record the transfer of drawings to owner’s capital?
A, Capital B, Capital C, Capital A, Drawings B, Drawings C, Drawings
What are the two ways to admit a partner?
- Purchase the interest of a partner
2. Invest assets in the partnership
What is the journal entry to record the admission of a new partner by purchasing interest?
Old partner, Capital
Old partner, Capital
New partner, Capital
What are the steps to determining a new partner’s equity when being added to the partnership?
1) Determine total partnership capital (all capital balances added)
2) Determine new partner’s equity (total partnership capital x interest percentage)
3) Determine the bonus amount (initial investment from new partner–partner’s equity)
4) Allocate bonus to new partner (if negative) or old partners (if positive)
What is the journal entry to record the admission of a partner with a bonus to the old partners?
Cash
Old Partner, Capital
Old Partner, Capital
New Partner, Capital
What is the journal entry for the admission of a partner with a bonus to the new partner?
Cash
Old partner, Capital
Old partner, Capital
New partner, Capital
What is the journal entry to record the withdrawal of a partner if the other two partners agree to each pay half of the leaving partner’s capital?
Leaving partner, Capital
Partner A, Capital
Partner B, Capital
What is the journal entry to record the withdrawal of a partner with a bonus to the withdrawing partner?
Leaving partner, Capital
Partner A, Capital
Partner B, Capital
Cash
What is the journal entry for the withdrawal of a partner with a bonus to the remaining partners?
Leaving partner, Capital
Partner A, Capital
Partner B, Capital
Cash
What are the four steps when liquidating a partnership?
1) Sell assets
2) Distribution of loss/gain for sale of assets
3) Pay liabilities
4) Distribution of cash to partners
What is the journal entry for the sale of assets at a loss?
Cash
Loss on sale of assets
Assets
What is the journal entry to record the distribution of the loss/gain for the sale of assets?
Partner A, Capital
Partner B, Capital
Loss on sale of assets
What is the journal entry to record the repayment of liabilities?
Accounts Payable
Cash
What is the journal entry to record the distribution of cash to owners in the case of liquidation?
Partner A, Capital
Partner B, Capital
Cash
What is the journal entry to record a payment of deficiency during the final step of the liquidation process?
Cash
Partner C, Capital
Partner A, Capital
Partner B, Capital
Cash
What is the journal entry to record the non-payment of deficiency during the final step of the liquidation process?
Partner A, Capital
Partner B, Capital
Partner C, Capital
Partner A, Capital
Partner B, Capital
Cash