ACC 421 Chapter 9/10

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

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

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

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

when a new partner is admitted to a partnership as a result of a cash transaction between individual parties

- the transfer of ownership may be recorded by a capital reclassification from the current partner to the new partner - the new partner's admission has no impact on partnership tangible assets and liabilities

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

The statement of partner's capital effectively replaces the statement ------ ------ for a corporation

retained earnings

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 false question.

true

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

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

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

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

Any change in the set of specific individuals that comprise a partnership automatically leads to a legal

dissolution

At year end, a partner's drawing account

is closed to the partner's capital account

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 profits and loss sharing ratios

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

- Close the partner's drawing accounts to their individual capital accounts - Close the income summary account by distributing the total profit or loss to the individual partner's capital accounts.

the uniform partnership act

- has been adopted by all states in some form - provides a legal definition of a partnership - establishes uniform standards for many partnership characteristics

under the hybrid method of recording a new partner's admission to a partnership

- identifiable assets are revalued to fair value - asset revaluations are credited to the original partners - a bonus may be recorded to align partners' capital accounts

When a new partner is admitted to a partnership as a result of a cash transaction between individual parties,

- the transfer of ownership may be recorded by a capital reclassification from the current partners to the new partner - the new partner's admission has no impact on partnership tangible assets and liabilities

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

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

typically included in an articles of partnership agreement are

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

Partners x and y comprise the xy partnership and each have 75,000 capital balances. Partners x and y share profits and losses 30% and 70%, respectively and the carrying amounts of the partnership net assets equal current fair values. Partner z is admitted with a 25% ownership interest for a 90,000 contribution to the partnership business. If the goodwill method is employed to record partner z's admission, goodwill will be recorded for what amount

$120,000

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

- Tax benefits exists for partnerships relative to corporations - Some state regulations prevent doctors and attorneys from forming corporations - Partnerships are easier and less costly to form than corporations.

a limited liability partnership (LLP)

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

a limited partnership (LP)

- 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 - often has investors that are not allowed to participate in the management of the partnership

The articles of partnership document

- Represents a legal agreement that governs the operation of the partnership - Is a negotiated agreement created by the partners - Largely determines the accounting procedures followed by the partnership.

Ways in which individual can gain admission into a partnership include

- Buying an ownership interest directly from one or more existing powers - Contributing tangible assets directly to the partnership - Contributing intangible assets directly to the partnership

A limited liability company (LLC)

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

Potential future effects of the valuation of property contributed

- Settlement of a partner's interest upon partner retirement - Capital account balances often affect partnership profit and loss distribution - Settlement of a partner's interest upon partnership liquidation

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

No asset is recorded; only partner's capital accounts are affected.

Corporations pay income taxes. Additionally their owners also often pay taxes when the corporation's income is paid as dividends. In contrast, because partnership income is passed though to the individual partners tax returns, the partnership is said to avoid ________ taxation of the profit earned by the business.

double

The legal term stating that each partner possesses the right to incur liabilities on behalf of the partnership in the normal course of business is

mutual agency

A new partner exchanges a $20000 cash payment to the partnership business for a 10% partnership ownership interest. Under the bonus method

- no revaluation of existing partnership assets takes place - the capital balance of the new partnership will equal 10% of partnership net assets including the $20000 cash payment