Miscellaneous Topics Flashcards
Roberts and Smith drafted a partnership agreement that lists the following assets contributed at the partnership's formation: Cash: Roberts: $20,000 | Smith: $30,000 Inventory: -- | $15,000 Building: -- | $40,000 Furniture & Equipment: $15,000 | -- The building is subject to a mortgage of $10,000, which the partnership has assumed. The partnership agreement also specifies that profits and losses are to be distributed evenly. What amounts should be recorded as capital for Roberts and Smith at the formation of the partnership? Roberts | Smith A. 35,000 | 85,000 B. 35,000 | 75,000 C. 55,000 | 55,000 D. 60,000 | 60,000
B.
Robert’s capital account = 20,000 + 15,000 = 35,000
Smith’s capital account = 30,000 + 15,000 + 45,000 - 10,000 = $75,000
Each account is credited for the Fair Value of the net assets contributed.
Goodwill method of Partnership Dissolution
When adding new member, assume that the new contribution/% new interest = partnership value.
Partnership Value - total capital of old partners and new contribution = Goodwill.
Dr = Goodwill CR = each partner's capital account for their % * Goodwill Then record new partner: DR = Cash or asset contributed CR = New partner's capital account
Bonus Method of Partnership Dissolution
New partnership Capital = Old Partner’s Capital + New Partner’s Asset investment
New Partnership Capital * %new interest = amount of contribution to allocate to new partners
DR Asset contributed
CR Partner’s share based on %
If the amount of new capital balance for new partner is > total contribution, treat as if partners gave bonus to new partner.
DR Asset
DR each partner’s capital account by %
CR new partner for balance to allocate
Partnership Dissolution is the addition or retirement/death of an existing partner. This is not a liquidation, but a new accounting entity is the result.
Three cases can result from new partner:
Will invest asset into partnership and receive capital balance:
1. Equal to purchase price:
DR Asset
CR New partner’s capital account
2. Capital received > Purchase Price
3. Capital received < Purchase Price
Recognize under Bonus Method or Goodwill Method if capital does not equal purchase price.
Partnership formation
Is a separate accounting entity, separate Assets and Liabilities from personal A &L.
Assets and Liabilities are valued at:
Fair Market Value (Assets) Present Values (Assumed Liabilities)
DR Asset contributed
CR Capital accounts for contribution, net of assumed liability for that partner
The death or withdrawal of a partner
Either the bonus or goodwill method may be used.
Ex: A=40%, B=40%, C=20%; If A withdraws, had capital account balance $10,000; and B & C will pay A $16,000
Entries for Bonus Method & Goodwill Method
Bonus Method:
DR B Capital $4,000 = 40% * A’s Capital 10,000
DR C Capital $2,000
CR A’s Capital $6,000
DR A Capital 16,000
CR Cash 16,000
Goodwill Method: DR Goodwill $15,000= Assume Increase to Total Capital $6,000/40% CR A Capital 6,000 = 40% of 15,000 CR B Capital 6,000 CR C Capital 3,000
DR A Capital 16,000
CR Cash
Sales Between Partners
No goodwill:
Record no cash or asset, only the exchange of capital
DR old partner’s Capital
CR New partner’s capital = sum of amounts received
Goodwill:
If paid $80,000 for 50% interest, then assume total partnership value is 160,000 ie 80,000/50%;
Subtract from this the total capital before purchased. That is Goodwill to be allocated to old partner’s capital accounts.
Then remove 50% from old’s accounts and apply to new.
Liquidation of Partnership
First sale of assets, note any loss and distribute among partners by P&L ratios
Second settle of Liabilities
Third sale of remaining assets, not any losses
Settle of Deficit in any capital accounts so 0 out, use the remaining solvent parties’ ratios to contribute.
The party who was in deficit is liable to partnership for this amount, if personally solvent and repays the amount then the amounts contributed by other parties will be returned.
Foreign Currency Translation
Foreign currency transactions which are denominated in other than a company’s functional currency (exports, imports, loans).
FASB ASC 830-10-45-17 provides that remeasurement for transactions denominated in a currency other than the functional currency will give rise to a “foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes.”
Include in Foreign Exchange Gain the amount of the REMEASUREMENT gain.
Translation adjustments are reported separately and accumulated in Comprehensive Income.
Purchased a forward contract to speculate in the foreign currency. Calculate amount of loss or gain
Forward rate available for remaining maturity of
contract (as of FS date)
Less contracted forward rate used at purchase
= difference * units = amount of loss
Sold merchandise on 30 day account
The receivable should initially be recorded at the spot rate on the date of the transaction.
Foreign Exchange Rate used in Transaction
Sold on account 2,000 units, rate 1 pound to 1.43; end of year rate 1.45; on date of settlement 1.50. What gain or loss is recognized at payment?
Gain =
2000 * 1.45 = 2900 Year End
2000 * 1.50 = 3000 Settlement
= 100
