Partnership Accounting Flashcards
A partnership has four partners who have a complicated arrangement for allocating all profits to the various capital accounts. However, in the first year of operation, the partnership loses $60,000.
How is the allocation made?
if there is agreement as to the allocation of profits to the various partners but there is no agreement on losses, the same pattern is applied for losses as is used for profits
A partnership has net income of $60,000. The 2 partners( B &Y) have allocation agreement whereby Y will get a salary allowance of $20,000 all other profits will be split 60% to B and 40% to Y.
Based on this, how much will be added to the capital of each of the two partners?
Y is given 20,000 leaving 40,000 to be split by the 60:40 agreement
B’s capital account goes up by 24,000 (40,000 x .60)
Y’s capital account goes up by 36,000 (20,000+(40,000 x .40))
C and X are partners who share profits and losses on a 30:70 basis. The partners are liquidating the partnership and have $20,000 in cash remaining, with no other assets or remaining liabilities.
How is this money split between the partners?
in the final liquidation of a partnership, the partners share remaining assets based on their final reported capital balances
A partnership is to liquidated but still has a number of assets left to be sold. However, the business holds $20,000 in cash.
How is this money allocated among the partners?
enough money must be kept in reserve to pay all debts and potential liquidation costs. If any extra cash is being held, that money can be given immediately to the partners. First, the assumption is made that all non-cash assets result in complete losses. Second any partner who would have a negative capital balance after these anticipated losses is assumed to be unwilling or unable to add any more money into the partnership
after this series of potential losses, any remaining positive capital balances reflect amounts that can be paid to the specific partners
For financial reporting purposes, how does a partnership record assets donated to the partnership by its partners?
all donated assets are recorded at the FV on the date of conveyance
A person conveys cash to a partnership in order to become a partner.What are the ways by which this transaction can be recorded?
exact method
bonus method
goodwill method
M wants to buy a 40% interest in the partnership of A and Z for $200,000 cash. Currently, A gets 30% and Z gets 70% of all profits and losses. A has a capital balance of $100,000 and Z has a capital balance of $150,000.
After M enters the partnership, what will each capital balance be?
Assume that the bonus method will be used.
under the bonus method the total capital after acquisition is first determined
100,000 + 150,000 + 200,000 = 450,000
the new partner’s ownership percentage is multiplied by the total capital to get new partner’s beginning capital balance. M will start with a capital of $180,000 (450,000 x .40)
the difference between the capital balance and the cash conveyed is a bonus to or from the other partners allocated at their profit and loss ratio
(200,000 - 180,000 = 20,000 bonus)
A gets 30% of the 20,000 or 6,000 so A’s capital goes up to 106,000
Z gets 70% of the 20,000 or 14,000 so Z’s capital goes up to 164,000
M wants to buy a 40% interest in the partnership of A and Z for $200,000 cash. Currently, A gets 30% and Z gets 70% of all profits and losses. A has a capital balance of $100,000 and Z has a capital balance of $150,000.
After M enters the partnership, what will each capital balance be?
Assume that the goodwill method will be used.
under the goodwill method the amount paid is divided by the percentage acquired to get an implied value for the entity as whole (200,000/.40 = 500,000)
under the goodwill method the new partner always starts off with the capital that was contributed, so M will start with a capital account of 200,000
the difference between total capital (450,000) and implied value (500,000) is viewed as goodwill (50,000)
A gets 30% of the 50,000 or 15,000 so A’s capital goes up to 115,000
Z gets 70% of the 50,000 or 35,000 so Z’s capital goes up to 185,000
A partnership has a reported net income of $100,000. The business has 3 partners X, Y & Z
If there is no agreement, how is this $100,000 assigned to the various partners’ capital accounts?
all profits and losses would be allocated equally
