accounting chapter 11-12

Partners can also agree to allocate ______ _____ based on the amount invested.

"interest allowances"

The owners who are called _____ are protected with the same limited liability as owner corporations. A limited liability company usually has a limited life. For income purposes, it is treated as a _______.

"members" partnership

Employers usually separate FICA taxes into two groups:

1. Retirement, disability and survirorship (social security) 2. Medical (medicare)

partnership assets are owned jointly by all partners. Any investment by a partner becomes the joint property of all partners. :

Co-ownership of property

a potential obligation that depends on a future event arising from a past transaction or event.

Contingent liability Exempler: lawsuit

____ ____ ____ ____ refers to that part of long term debt due within one year or the operating cycle.

Current portion of long-term debt

a cumulative record of an employee's hour worked, gross earnings, deductions, and net pay.

Employee earnings report

______ ______ implies that each partner is a fully authorized agent of the partnership. As its agent, a partner can commit or bind the partnership to any contract within the scope of the partnership business.

Mutual agency

amounts received in advance from customer for future products or services.

Unearned revenues (deferred revenues), Example: advance ticket sales for sporting events or music concerts.

These promisory notes are ______, they can be transferred from party to party by endorsement.

negotiable (as checks)

In partnership, Partners capital accounts are credited or debited for their shares of ____ ____ when closing the accounts at the end of a period.

net income

S corporations provide stockholders the same limited liability feature that C corporations do. The advantage of S corporation is that it does ____ ___ ____ ____.

not pay income taxes.

Vacation benefit expense is an ____ ______.

operating expense

Examples on Estimated liability:

pensions, health care and vacation pay.

a partnership is not subject to _____ on its income.

taxes

Employee FICA taxes :

the federal social security system provides retirement, disability, survivorship, and medical benefits to qualified workers.

some individuals who want to invest in a partnership are unwiling to accept the risk of _____ _____. Their needs can be met with a _____ partnership.

unlimited liability limited

Three common methods to divide income or loss use:

• A stated ratio basis • The ratio of capital balances • Salary and interest allowances and any remainder according to a fixed ratio.

Accounts with Current liabilities:

• Accounts payable • short term notes payable • wages payable • warranty liabilities (short term) • lease liabilities (short term) • taxes payable • unearned revenues

Amount owed is:

• Estimable • Nonestimable

Three important elements of liability:

• past transaction or event • present obligation • future payment of assets or services.

When the employee takes a vacation, the employeer :

(debits) the vacation benefits payable and credits cash.

Steps in order to liquidating a partnership:

1. Record sale of noncash assets and any resulting gains or losses 2. Allocate any gains or losses to the partners 3. Pay all partner liabilities 4. Distribute remaining cash to partners

Bonus to withdrawing partner - a withdrawing partner may be able to receive more than his or her recorded equity for at least two reasons:

1. The recorded equity may be understated 2. The remaining partners may agree to remove this partner by giving assets of greater value than his partner's recorded equity.

A partner generally withdraws from a partnership in one or two ways:

1. The withdrawing partner can sell his or her interest to another person who pays for it in cash or other assets. 2. When cash or other assets of the partnership are distributed to the withdrawing partner in settlement of his or her interest.

obligations due within one year or the company's operating cycle.

Current liabilities - also called short term liabilities

Recording employer payroll taxes

Employer payroll taxes are an added expense beyond the wages and salaries earned by employees. These taxes are often recorded in an entry separated from one recording payroll expenses and deductions.

_____ _____ _____ _____, When the end of an accounting period occurs between the signing of a note payable and its maturity date, the _____ _____ principle requires us to record the accured but unpaid interest on the note.

End of period interest adjustment expense recognition (matching)

_____ _____ are often viewed as fixed expense because the amount of these liabilities is likely to remain in one form or another for a substantial period of time. This means that the amount of interest is unlikely to vary due to changes in sales or other operating activities.

Interest expense

liabilities with little uncertainty, set by agreements, contracts or laws that are measurable:

Known liabilities (definitely determinable liabilities)

A future payment of assets or services that a com pay is obligated to pay

Liability

elatively new form of business organization, often called "LLC or LC. This is similar to corportation and limited partnership.

Limited liability company

____ ____ liabilities usually have a fixed due date with higher percentage.

Long term

a company's obligation that are longer than one year of the operating cycle.

Long term liabilities

Partnership:

More than one owner allowed, owners have unlimited liability

Partner return on equity is computed as:

Net income/ (beginning year balance + ending year balance) / 2

Return on equity of the total partnership:

Net income/ (beginning year balance+ ending year balance) / 2

gross pay less all deductions.

Net pay or take-home pay

C corporation:

One or more owners, owners have limited liability, business is taxed.

LCC:

One or more owners, owners have limited liability, no busines tax

Proprietorship:

Only one owner allowed; owner has unlimited liability

An important role of partnership financial statements is to aid current and potential partnership success compared with other opportunities. One measure of this success is the partner return on equity ratio:

Partner net income / Average partner equity

uncorpirated association of two or more people to pursue a business profit as co-owners. They are common in small retail and service business.

Partnership

commonly called witholdings, are amounts witheld from an employee's gross pay, either required or voluntary.

Payroll deductions

Limited liability partnership:

Protects innocent partners from malpractice or negligence of other partners.

a personal transaction between one or more current partners and the new partner.

Purchase of partnership interest

certain corporations with 100 or fewer stockholders can elec to be treated as partnership for income tax purposes, such as:

S - corporations

_____ ______, Provides shareholders with limited liability, but allows them to elect to be treated as partnership for tax purposes.

S corporation:

_____ _____ ____ - are stated as a percent of selling prices. The seller collects sales taxes from customer when sales occur and remits these collections to the proper government agency.

Sales taxes payable

_____ ______ implies that each partner can be called on to pay a partnership's debts.

Unlimited liability

Liabilities involves three important questions:

Whom to pay? When to pay? How much to pay?

State unemployement taxes (SUTA)

all states support their unemployement insurance programs by placing a payroll tax on employers.

existing partners can grant a _____ to a new partner, this usually occurs when they need additional cash or the new partner has exceptional talents.

bonus

In partnership, each partner's withdrawal account is closed to that partner's ____ _____.

capital account

Partnership income or loss is allocated each year whether or not _____ is distributed to partners.

cash

Their agreement becomes a partnership contract, also called articles of ______.

copartnership

Since seller currently owe these collections to the government, this amount is a _____ _____

current liability.

The income or loss of a partnership is allocated to the partners according to the agreement, and the taxable income for ____ partner's tax return.

each

Statement of partner's equity, also called statement of partner's capital, shows :

each partner's beginning capital balance additional investments allocated income or loss withdrawals and ending capitcal balance.

Federal unemployement taxes (FUTA)

employers are subjuet to a federal unemployment on wages and salaries paid to their employees.

When a partnership is liquidated, its business _____ and three concluding steps are required:

ends 1. Record the sale of noncash assets for cash, and any gain or loss from liquidation is allocated to partners using their income and loss sharing agreement. 2. Pay or settle all partners liabilities 3. Distribute any remaining cash to partners based on their capital balances.

Sales taxes payable is not an _______ because laws require sellers to collect this cash from customers for the government.

expense

There is no salaries to partners that are reported as _____ on the partnership income statement.

expenses

Mutual agency and unlimited liability are two main reasons that most general partnership have only ____ ____.

few members.

is the total amount an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions such as taxes.

gross pay

The difference between the amount borrowed and the amount repaid is ______.

interest.

Federal Insurance Contributions Act (FICA taxes

laws require employers to pay this insurance to cover cost of the system.

The more allowance one claims, the _____ tax the employer will withhold.

less

the life of a partnership is ______.

limited Death, bankruptcy, or any event taking away the ability of a partner to enter into or fulfill a contract ends a partnership.

Long-term debt is reported under _____ ______, but the current portion due is reported under ____ _____.

long-term liabilities current liabilities.

Capital deficiency :

means that at least one partner has a debit balance in his or her capital account at the point of final cash distribution.

A company can replace an account payable with a ____ _____.

note payable

Estimated liability

obligation that is of an uncertain amount but that can be reasonably estimated:

If a partner does not have enough assets to meet his or her share of the partnership debt, the creditors can apply their claims to the assets to the _____ _____.

other partners

In partnership, Partners withdrawals are debited to their ______ withdrawal account

own separate

forming a partnership requires that two or more legally competent people agree to be partners, called ______ _____.

partnership agreement

When a partnership cannot pay its debts, creditors usually can apply their claims to partners _____ assets.

personal

To become a partner, the current partners must accept the _____.

purchaser.

The written documentation provided by notes is helpful in resolving disputes and for :

pursuing legal actions involving these liabilities.

Allowances ______ the amount of taxes one owes the government.

reduce

Federal and state unenployment taxes

unenployement insurance program. Provide unenployment benefits to qualified workers.

a partnership is a _____ _____ between partners. Joining a partnership increases the risk to one's personal financial position.

voluntary associaion

A limited partnership has two classes of partners:

• General - assumes mangament duties and unlimited liability for the debts of the partnership. • Limited - have no personal liability beyond the amounts they invest in the partnership. They have no active role except as specified in the partnership agreement.

Future event is:

• Probable • Possible • Remote

Known liabilities:

• accounts payable • notes payable • payroll • sales taxes • unearned revenues • leases

A new partner is admitted in one of two ways:

• by purchasing an interest from one or more current partners • investing cash or other assets in the partnership

Accounts with Long-term liabilities:

• long term notes payable • warranty liabilities • lease liabilities • bonds payable

Partnership agreement usually includes:

• names and contributions • rights and duties • sharing of income and losses • withdrawal arrangement • dispute procedures • admission and withdrawal of partners • rights and duties in the event a partner dies

are amounts owed to suppliers, also called vendors, for products or services purchased on credit

Accounts payable

When the net income or loss of a partnership is allocated among partners, the partners can agree to allocate _____ _____ reflecting the relative value of services provided.

"sallary allowances"

all partners have mutual agency and unlimited liability:

General partnership

Limited partnership has:

Has both general partners and limited partners

A partnership get ______ , not salary.

Income = profit or loss

Times interest earned =

Income before interest expense and income taxes / Interest expense

_______ ______ liabilities have a lower percentage without a fixed due date, but instead are payable on the creditor's demand.

Short term

a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle.

Short- term note payable