Partnership Accounting - 20D

Question 1

All assets contributed to the partnership are recorded how?

Answer 1

Fair Market Value at the date of investment

Question 2

All liabilities are recorded how?

Answer 2

Present Value

Question 3

What amount is credited to each partners capital account?

Answer 3

The difference between the fair market value of assets contributed and the present value of the liabilities assumed from that partner

Question 4

In the absence of a predetermined agreement, how is net income distributed?

Answer 4

Equally

Question 5

What causes a partner dissolution?

Answer 5

Whenever there is a change in ownership

Ex: Addition of new partner or retirement or death of an existing partner

Question 6

When a new partner is admitted to the partnership, what three cases can occur?

Answer 6

The new partner can invest assets and receive a capital balance:

1. Equal to their purchase price
2. Greater than their purchase price
3. Less than their purchase price

Question 7

In the Bonus Method, is the old partnership capital plus the new partner’s asset contribution equal to the new partnership capital?

Answer 7

Yes
If the capital balance received is greater than the asset contribution for the new partner, then the new partner received a “bonus” from the old partners

If the capital balance received is less than the asset contribution, then the new partner gave the old partners a “bonus”

Question 8

How is the Goodwill Method calculated?

Answer 8

Divide the new partner contribution by the percent of the capital to be received by the new partner and subtract the value of the new partnership

Ex of JE:
Goodwill                   DR
     Old Capital                CR
     Old Capital                CR
Cash                        DR
     New Capital               CR

Question 9

If a specific method is not given, assume what?

Answer 9

The Bonus Method is used

Question 10

What are the two key steps in preparing a statement of partnership liquidation?

Answer 10

1. Determining the available cash

2. Determining which partners are to receive cash payments

Question 11

When liquidating, the final cash distribution is based off what?

Answer 11

The balance in each partner’s capital account

Question 12

What is the formula to determine a necessary contribution?

Answer 12

Partnership Interest of New Partner x (Capital Balance of Existing Partners/Amount to be contributed) = Amount to be contributed

Question 13

Under the Goodwill method, When is the value of a partnership determined based upon the contribution of the new partner?

Answer 13

When the book value acquired by the new partner is less than the asset contribution

Question 14

Under the Goodwill Method, when is the value of the partnership determined based on the capital accounts of the old partners?

Answer 14

When the book value acquired of the new partner is more than the asset contributed