ACCT 401 Final
Partner's accounts include:
-Capital Accounts -Drawing Accounts -Loan Accounts
Profit Distribution methods:
-Preselected ratio -Interest on capital balances -Salaries to partners -Bonuses to partners
When a new partner invests less in a partnership than their book value share, the alternative accounting treatments are:
-Revalue net assets downward (GAAP) -Recognize Goodwill (Not GAAP) -Allocate capital bonus to new partner, from other partners capital accounts (GAAP)
When a new partner invests more in a partnership than their book value share, the alternative accounting treatments are:
-Revalue net assets upward (not GAAP) -Record goodwill (not GAAP) -Bonus method (GAAP)
Partnership Financial Statements
-income statement -balance sheet -statement of cash flows -statement of partners' capital
A formal written agreement should include:
-profit sharing -adding a new partner -retiring a partner -capital infusions -actual authority of partners
Three distinct factors for a partnership:
1. Association of two or more persons 2. To carry on as co-owners 3. Business for profit
T or F: A loan from a partner is shown as a payable on the partnership's books
True
T or F: An item contributed by a partner becomes partnership property
True
T or F: Each partner has one capital account, which usually has a credit balance
True
T or F: Liquidating distributions, in cash, are made to each partner with a capital credit balance
True
T or F: Loans with partners have the same status as liabilities to the partnerships' third party creditors
True
T or F: On dissolution, the partnership begins the winding up of the partnership's business
True
T or F: Partnerships are considered a separate entity for accounting purposes
True
T or F: The partnership typically purchases the dissociated partner's interest in the partnership for a buyout price
True
T or F: profit distributions are recorded directly into the partner's capital accounts
True
T or F: In a partnership liquidation, creditors have first claim to the partnerships assets
True (after that, remaining assets are distributed to the partners based on the balances in their capital accounts
Most partnership liquidations take place over
an extended period in order to obtain the largest possible amount from the realization of the assets
Profit distributions are similar to dividends for a corporation because they are
not included in the partnership's income statement
Installment liquidation requires:
several months to complete and includes periodic payments to the partners during the liquidation period
Dissolution:
the dissolving of a partnership
Statement of partnership realization and liquidation presents:
the effects of the liquidation on the partnership balance sheet accounts in workpaper form
The balance in the capital account represents:
the partner's share of the net assets of the partnership
An investment < new partner's share of Book Value indicates that
the partnership's prior net assets are overvalued
An investment > new partner's share of Book Value indicates that
the partnership's prior net assets are undervalued
The winding up process includes:
the transactions necessary to liquidate the partnership
Dissociation of a partner:
Death, voluntary withdrawal, or judicial determination of a partner (not all dissociations result in a partnership liquidation)
T or F: A capital account in a deficit will have a credit balance
False
T or F: Each partner with a deficit in his or her capital account does not have to make a contribution to the partnership to remedy that capital deficit
False
T or F: New partners are personally liable for prior acts/debts
False
T or F: Noncash drawings should be valued at their book values at the date of withdrawal instead of their fair market values
False
T or F: Through the eyes of the IRS, earnings don't pass through to the individual partners
False
In lump-sum liquidations:
All assets are converted into cash within a very short time, creditors are paid, and a single, lump-sum payment is made to the partners for their capital interests
If a partner fails to remedy his or her capital deficit:
all other partners must contribute, in the proportion to which those partners share partnership losses, the additional amount necessary to pay the partnership's obligations