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