Partnership

Question 1

Is there a journal entry for a purchase or sale of existing partnership interest?

Answer 1

No

Question 2

How are assets valued in contributions to a partnership?

Answer 2

Fair value

Question 3

How are liabilities assumed valued at during contributions to a partnership?

Answer 3

Present value

Question 4

What are the 3 ways used to create a new partnership interest with investment of additional capital?

Answer 4

Exact, Bonus, and Goodwill

Question 5

What is the significance of the exact method?

Answer 5

Purchase price is equal to the book value of the capital account purchased

Question 6

What is the significance of the bonus method?

Answer 6

Bonuses are adjusted between the old and new partners’ capital accounts and do not affect partnership assets

Question 7

If interest is less than amount contributed, who receives bonus?

Answer 7

Old partners

Question 8

If interest is greater than amount contributed, who receives bonus?

Answer 8

New partners

Question 9

What is the significance of the goodwill method?

Answer 9

Recognized based upon the total value of the partnership implied by the new partner’s contribution

Question 10

What is deducted from total profit to arrive at the amount of profit and loss distributed in the profit and loss ratio?

Answer 10

Interest, salaries, and bonuses

Question 11

What are the 2 methods used for withdrawal of a partner?

Answer 11

Bonus and Goodwill methods