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ABC partnership shares profits and losses 20% to A, 30% to B, and 50% to C. If C retires from the partnership and receives a $10,000 bonus, the bonus reduces the capital balances of A and B by

40% to A and 60% to B.

A limited liability partnership (LLP)

limits the partners' individual liabilities resulting from damages awarded by a court. is a popular organizational form for major public accounting firms. does not limit individual partner's liability arising from contractual obligations of the partnership.

Which of the following is not a reason for forming a partnership as opposed to a corporation for a new business?

Partnership income typically flows tax-free to the partners.

What are some partnership activities that are considered capital transactions?

Retirement of a partner. Allocation of partnership profits and losses. Admission of a new partner.

Individual C is admitted with a 30% interest to the AB partnership in exchange for $50,000 cash paid to partners A and B. Why might C receive a capital credit for less that the $50,000 cash payment?

The $50,000 was paid to the current partners, not the partnership. The ownership transfer was recorded by reclassifying partial capital balances to A without any asset revaluation. The partnership employed a book value approach where each partner transferred 30% of their interest to C.

Upon a partner's withdrawal from a partnership, the goodwill method will credit each partner's capital account for their share of goodwill

according to their profit and loss sharing ratios.

The basic format of a statement of partners' capital is

beginning capital balances + income allocations - drawings = ending capital balances

A partner brings valuable expertise to a partnership. The partnership records no asset for this expertise, but the contributing partner nonetheless receives an additional capital credit. By crediting this partners capital account, the partnership has employed the

bonus

The hybrid method gets its name from the fact that it contains elements of both the goodwill (revaluation) method and the

bonus method

A partner receives an amount in excess of his/her capital balance upon withdrawing from the partnership. A possible reason for the excess payment is that the partnership agreement calls for a revaluation of the partnership to its

fair value

According to the Uniform Partnership Act, an obligation of a limited liability partnership arising from a contract is solely the obligation of the

partnership

Under the bonus method any excess payment to a withdrawing partner beyond his/her capital balance

reduces the capital balances of the remaining partners.

Accounting techniques for recognizing a partner's contribution of a special valuable talent to a partnership include

the bonus method. the goodwill method.

A limited liability company (LLC)

with respect to partner liability is similar to a Subchapter S corporation. in many states limits a partner's risk to the amount he or she has invested in the partnership. is classified as a partnership for tax purposes.

When a new partner is formally admitted to a partnership

a new partnership is formed. a legal dissolution of the previous partnership occurs.

In determining the amount to pay a partner upon withdrawal, the partnership employs current assessments for both land and goodwill, This payment therefore

can be accounted for using either the goodwill, bonus, or hybrid method.

The articles of partnership document

is a negotiated agreement created by the partners. largely determines the accounting procedures followed for the partnership. represents a legal agreement that governs the operation of the partnership.

Included in the advantages of the partnership form of business organization are

a lower cost of formation compared to the corporate form. ease of formation. the ability to make any arrangement desired among the partners for income distribution and control of business decision making.

A tax advantage of partnerships over the corporate business organizational form is

the avoidance of double taxation. a partner's share of partnership operating losses can be used to offset income on the partner's individual tax return.

A partner contributes a building to her partnership that has appreciated in value. The the partnership's valuation basis for the building should be

FV

When partners make cash contributions to a partnership, a credit to each individual partner's _____ account records the contribution.

capital

Traditionally, the contribution of property by a partner to a partnership is recorded at _____ value.

Fair

In the Goldman, King, and Wilson textbook example where Goldman is admitted to the partnership with a 20% interest in exchange for a $20,000 cash investment in the partnership, under the bonus method

Goldman receives a bonus from King and Wilson.

Assume the articles of partnership specify that profits are to be allocated 60% to partner A and 40% to partner B. If, however the articles of partnership are silent concerning the allocation of a partnership loss, then any loss is allocated

in the same manner as partnership profits.

A limited partnership helps the individual partners protect their personal financial position through the avoidance of unlimited from the partnership.

liability

A Subchapter S Corporation

must have only one class of stock. is taxed in the same way as a partnership. provides limited liability to to its owners.

Under the bonus method for recognizing a partner's intangible contribution

no asset is recorded; only partners' capital accounts are affected.

A limited partnership (LP)

often has investors that are not allowed to participate in the management of the partnership. has general partners who are designated to assume responsibility for all partnership debts. has investors whose liability may be limited to the amount they have invested in the partnership.

Select all that apply Partnerships often serve as a preferred organization form for businesses compared to the corporate form because

some state regulations prevent doctors and attorneys from forming corporations. partnerships are easier and less costly to form than corporations. tax benefits exist for partnerships relative to corporations.

Included in rights that a partner can convey in a transfer of ownership are

the rights to share in the profits and losses of the partnership. the right of co-ownership of the partnership business property. the right to participate in the management of the business if agreed upon by by all other partners.

True or false: When an individual is admitted to a partnership and receives a partnership capital percentage in exchange for a contribution that includes goodwill, the amount of goodwill recognized is determined algebraically.

true

Compared to a corporation's balance sheet, the owners' equity section of a partnership

typically consists of solely partner's capital accounts. typically provides a much more limited range of information. does not usually distinguish between contributed and earned capital.

Periodic cash withdrawals from the partnership by individual partners are recorded initially as a credit to cash and a debit to a

Drawing account

True or false: An advantage of a limited liability company (LLC) is that the number of owners is not restricted.

True

Zoe is admitted to the Xavier-Yang partnership in exchange for a cash investment. Zoe's initial capital credit is greater that her cash contribution. Under the goodwill method of recording the new partner's investment,

Zoe's contribution of goodwill is recognized.

According to the Internal Revenue Code, partnership income

flows through to the individual tax returns of the individual partners.

Under the goodwill method for recognizing a partner's intangible contribution

goodwill is recognized as an asset of the partnership to reflect the intangible contribution. the partner deemed to be contributing goodwill is given a capital credit to recognize the asset brought to the partnership.

Often a partner may sell his partnership interest to another individual. Why must all partners agree to allow this new partner the right to participate in the management of the partnership?

Current partners may be reluctant to yield management decision making that is essential to the well-being of the partnership. To protect the current partners from unwanted intrusion by the new partner.

In addition to tangible asset contributions, a new partner may bring other intangible value to a partnership including

an ongoing set of business clients. professional reputation. a special talent or skill set.