Partnerships

Question 1

When the bonus goes to the new partner, how do you account for it?

Answer 1

Take bonus out of existing partner’s capital accounts by debiting capital

Question 2

Partnerships: Profit and Loss Distribution

Answer 2

All interest, salaries, and bonuses are deducted from total profit to arrive at the amount of P & L distributed in the P&L ratio.

Question 3

Withdrawl of a partner

Answer 3

Under both bonus and goodwill methods, you must revalue the assets to reflect fair value.

Question 4

Liquidation of a Partnership: What is the order of preference regarding distribution of assets?

Answer 4

1. creditors (including partners who are creditors) 2. partner’s capital

Question 5

Liquidation of a Partnership: Losses

Answer 5

All possible losses must be provided for in a liquidation before any distribution is made.