411 Ch. 9 SB AA

Potential future effects of the valuation of property contributed to a partnership include

-capital account balances often affect partnership profit and loss distribution. -settlement of a partner's interest upon partnership liquidation. -settlement of a partner's interest upon partner retirement.

Assume all periodic partnership revenues and expenses have been closed to an Income Summary account. Final closing entries are then needed to

-close the partners' drawing accounts to their individual capital accounts. -close the Income Summary account by distributing the total profit or loss to the individual partners' capital accounts.

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

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

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

-goodwill -bonus

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.

Accounting for a partnership's owners' equity tends to be much less complex than for a corporation because

-government regulations require greater disclosures for corporations to protect the investing public and others -partnerships tend to be smaller and have less complex equity transactions than corporations.

The Uniform Partnership Act

-has been adopted by all states in some form. -has been adopted by all states in some form. -establishes uniform standards for many partnership characteristics.

A limited liability company (LLC) ___.

-is classified as a partnership for tax purposes and court purposes -with respect to partner liability is similar to a Subchapter S entity -in many states limits an owner's risk to his or her own investments

The articles of partnership document

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

A limited liability partnership (LLP) ___.

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

As compared to corporations, disadvantages of the partnership business form include

-mutual agency where individual partners can incur liabilities in the name of the partnership in the normal course of business. -unlimited personal liability of the individual partners for all partnership debts.

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.

Partnerships often serve as a preferred organization form for businesses compared to the corporate form because

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

A Subchapter S Corporation

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

Partnership capital contributions often include

-tangible asset contributions. -intangible asset contributions. -cash

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.

Typically included in an articles of partnership agreement are

-the procedures for admitting a new partner. -the rights and responsibilities of each partner. -how to distribute the profits and losses of the partnership.

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.

Partners A and B allocate annual partnership income as follows. Each partner receives 20% of their beginning capital balances. Each partner also receives a $10,000 salary. Remaining income is distributed 60% to partner A and 40% to partner B. If current year net income is $58,000 and beginning capital balance for A and B are $90,000 and $75,000, respectively, how much net income is allocated to partner B?

27,000 Reason: (20% x $75,000) + $10,000 + (40% x $5,000) = $27,000

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

drawing account

A partner brings valuable website design talent to a partnership. The partnership records goodwill to recognize this talent, and the contributing partner receives an additional capital credit. To account for the contribution of talent, the partnership has employed the -- method

goodwill

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.

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

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

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

partnership

If the articles of partnership are silent with regard to partnership income distribution to the individual partners, then

partnership income is allocated equally among all partners.

The statement of partners' capital effectively replaces the statement of --- --- for a corporations

retained earnings

What are some partnership activities that are considered capital transactions?

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

A partner's capital account represents a claim on the partnership business as a whole, but not a specific claim on any individual

asset