Accounting For Partnerships Notes

A _association of __ or more people to pursue a buiness for profit

Unincorporated, 2

Characteristics of Partnerships

1. Voluntary

2. Agreement

3. Limited

4. Tax

5. Mutual Agency

6. Limited

7. Co-Ownership

Characteristics of Partnerships

1. _ Association

2. Partnership (becomes a partnership contract)

3. ____ Life due to death, bankruptcy, expiration of contract

4. Not Subject to _ on

5. _: can enter into contracts and bind partnership within normal scope

6. Liability: partners individually liable for partnership debts

7. _ of Property: assets are owned jointly

Limited Partnership

Has two classes of partners

General Partner

Active role in management and unlimited liability

Limited Partner (L.P.)

No role in management but limited liability

Limited Liablility Partnership (L.L.P.)

Protects innocent partners from the negligence of other partners.

S Corporation

75 (now 100) or fewer shareholders, taxed like a partnership, and pay NO taxes

Limited Liability Company (L.L.C.)

Members are active in management, with limited library features.

Separate

Use ____ capital and withdrawl account for each partner

Organizing a Partnership

Can invest assets and liabilities normally recorded at fair market value

Partners are ____ employees and do ___receive a "salary", it's an allocation of income.

not, not

Dividing Income agreed upon 1 of 3 terms:

1. Stated Ratios

2. Ratio of Capital Balance

3. Service, Capital and a Stated Ratio

Statement of Changes in Partner's Equity

Shows changes in each partner capital

Balance Sheet

List each partners capital separately

Purchase of Partnership Interest

Is a personal transaction, not a receipt of cash by the partnership. the purchaser must be accepted by current partners

Invested Assets in a Partnership

Is a transaction between the new partner and the partnership. The new partners equity can differ from his investment which is a bonus to the new or old partners equity accounts.

Withdrawal of a Partner

The withdrawing partner can sell his interest to another person for cash or other assets. Cash or other assets are distributed to the withdrawing partner in settlement of interest which could result in a bonus.

Noncash Assets

Assets sold for cash and a gain or loss on liquidation is recorded

Gain or Loss

Is liquidation allocated to partners in income/loss ratio

Liabilities are ____

paid

Distribute:

Remains cash to partners on capital balances

No Capital Deficiency

When all capital accounts have a credit balance for final distribution

Capital Deficiency

When at least one partner has a debit balance in his capital account.

Partner ROE (Return on Equity) = ____

Partner Net Income / Average Partner Equity