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34 Cards in this Set

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What is a Partnership?
An Unincorporated association of two or more people to pursue a business for profit as co-owners
What are the Features of a Limited Partnership?
Has two classes of partners, General Partner and Limited Partner. The General Partner assumes duties and liability. The Limited Partner has no Active Role except as Specified in the Partnership Agreement. Profits and Losses are also Specified in the Partnership Agreement.
What is a Limited Liability Partnership designed for?
It is designed to protect innocent partners from malpractice or negligence claims that result from another partner's actions.
What are the Features of a S Corporation?
Has 75 or less stockholders. Can be treated as a Partnership for income tax purposes. S Corporations do not pay income taxes. Income and Losses are reported to stockholders Personal Income tax returns.
Discuss the Features of a Limited Liability Company?
Has some features similar to a Corporation and others similar to a Partnership. Owner/Members have limited liability like corporations. Limited Members can have an Active Role. This type ususally has a limited life and treats taxes like a Partnership.
Give a Journal Entry Where a Partner Invests Cash
Cash - Debit
Owner Capital, Credit
Give a Journal Entry Where a Partner Invest an Office Space of $33,000 and a Note Payable for $10,000 on that Space into the Partnership and Cash of $7,000.
Office Space - Debit - $33,000
Cash - Debit - $7,000
Note Payable - Credit $10,000
Owner Capital - Credit
$30,000
Do Partners Receive Salaries that are Reported as an Expense on the Partnership Income Statement? Why or Why Not?
No, Partners Salaries are recorded as an allowance, not an expense. Partners devote their time and service for profit, not salary. Their profit or loss will not be reported on the income statement. Net Income or Net Loss will be divided based on the partnership agreement and Recorded in Income Summary and their Capital Accounts
What are Salary and Interest Allowances, are these Considered Expenses on the Income Statement?
Partner's can elect to have salary or interest allowance also called draws that are paid throughout the year much like a paycheck. These are not expenses and are not recorded on the income statement.
If There are No Agreements, How do Partners Share Income and Losses?
Equally
What are 3 Common Methods to Divide Income and Losses Amongst Partners?
Allocations based on:
Stated Ratio
Capital Balances
and Services, Capital and Stated Ratio
What is the Stated Ratio Allocation Method. If Wallace Receives 2/3 and Posey Recieves 1/3 of Net Income and Losses, What Will Each Receive if They Partnership Earned $60,000.
Allocating Profits and Losses on a Fraction of the Total, Based on the Partnership Agreement.
2/3 x 60,000 = $40,000 for Wallace
1/3 x 60,000 = $20,000 for Posey
Describe and Apply the Allocations Based on the Capital Balances if Posey Invested $30,000 and Wallace Invested $10,000 and the Partnership Made $60,000
Allocating partnership income or losses assigns an amount based on the ratio of each partner's capital balance.

Posey's $30,000/$40,000=3/4
Wallaces $10,000/$40,000=1/4
.75 x $60,000 Gives Posey $45,000 Profit
.25 x $60,000 gives Wallace $15,000 Profit
The Services, Capital and Stated Ratio Method Allocate Income and Losses Based on the Fact that ____________and_________
are Often Not Equal
Service and Capital Contribution
What are the Two Allocation that Can Make Up the Difference to the Partner Who Contributed More to the Business?
Salary Allowances and Interest Allowances
Give an Outline of the Statement of Partners' Equity
Beginning Capital Balances +
Investments by Owners
Net Income
Salary Allowances
Interest Allowances
Balance Allocated
Total Net Income
Less Partners' Withdrawals
Ending Capital Balance
When a Partner is Admitted or Withdraws, What Happens to the Partnership?
The Partnership is Terminated
What are Two Ways a Partner Can be Admitted?
By purchasing an interest from one or more current partners
or
by investing cash or other asset into the partnership
Give the Journal Entry if Edmon Invests $22,000 in the Partnership to Become a New Partner
Cash - Debit $22,000
Edmon, Capital - Credit $22,000
In the Partnership Agreement that Says:
*Wallace Will Receive Annual Salary of $36,000 and Edmon $24,000
*Annual Interest Allowance of 10% of Partner's Investment with Wallace Investing $30,000 and Edmon Investing $10,000
*and Equally Dividing Remaining Balances
If Income is $70,000 What Will Be Credited to Each Capital Account
$42,000 for Wallace
$28,000 for Edmon
If Wallace has $26,000 in the Partnership and Sells 1/2 to Edmon for $18,000, Give the Journal Entry to Record the Purchase by Edmon of Wallace's Interest
Wallace, Capital Debit - $13,000
Edmon, Capital - Credit $13,000
What Wallace sells her interest for and pockets is not a factor. Half of the capital amount is what is being transfered.
Wallace and Posey Agree to Accept Edmon with a 25% Interest and an Investment of $18,000. Wallace's Investment is $52,000 and Posey's Investment is $26,000. What is Edmon's Equity Amount?
Edmon's equity amount is $24,000
First find the total investment for all 3 partners, then find the equity amount for Edmon.
What are the two Ways a Partner can Withdraw from a Partnership?
Withdrawing partner sells his interest for cash or other assets
or
The partnerships settles with the withdrawing partner by distributing cash or other assets.
Give a Journal Entry if Posey Withdraws and Takes Cash Equal to Her Capital Balance of $38,000 With No Bonus
Posey, Capital $38,000
Cash $38,000
To record withdrawal of Posey from partnership with no bonus.
Can Posey Accept Assets as Well as Cash as Payment for Her Captial Balance?
Yes
Posey Withdraws and Agrees to take $34,000 in Cash Settlement for Her Capital Balance. Her Capital Balance is $38,000. Give the Journal Entry for Her Withdrawal With a Bonus Equally Divided Among Wallace and Edmon.
Posey, Capital Debit - $38,000
Cash - Credit $34,000
Wallace, Capital Credit $2,000
Edmon Capital Credit $2,000
First record Posey and Cash transaction then bonus.
If Posey Withdraws and Agrees to Except $38,000 for her $34,000 Capital Account Balance, Give the Journal Entry to Provide the Bonus to Posey, Split Between Wallace and Edmon.
Posey Debit - $34,000
Wallace Debit - $2,000
Edmon Debit - $2,000
Cash Credit - $38,000
Take monies out of capital accounts first, then account for your cash.
What are the Two Actions That are Usually Required After the Death of a Partner? After the Equity Amount is Determined, What Can be Done With This Amount?
1. Closing the books to determine the income or loss since the end of the previous period.

2. Determine and record the current market value of all assets and liabilities. (The remaining partners and the decedent's estate will agree to a settlement of the deceased partner's equity.)
What are the 4 Steps Required to Liquidate a Partnership?
1. Record the sale of noncash assets and any gain or loss from their liquidation.
2. Allocate any gain or loss from liquidation of assets to partners using their income-and-loss ratio.
3. Pay or settle partner liabilities
4. Distribute any remaining cash to partners based on their capital balances.
What are the two senarios that partnership liquidation falls under?
No Capital Deficiency and
Capital Deficiency
At the time of liquidation, Wallace has $70,000 in her capital account, Posey has $60,000 and Edmon has $62,000. They sell their assets for a gain of $6,000. Partners have agreed to share profits and losses equally. Their capital accounts increase to $72,000 for Wallace, $68,000 for Posey and $64,000 for Edmon. The partnership must pay a $20,000 cash payable. Give the journal entry to settle the accounts payable and the journal entry to distribute the remaining cash to the partners. (No Capital Deficiency)
A. Accounts Payable - Debit $20,000
Cash - Credit $20,000

B. Wallace, Capital - Debit $72,000
Posey, Capital - Debit $68,000
Edmon, Capital - Debit $64,000
Cash - Credit $204,000
Wallace has $19,000 in her capital account, Posey has $8,000 and Edmon has $(3,000). Edmon can pay the deciciency , give the journal entry for Edmon's payment.
Cash - Debit $3,000
Edmon, Capital - Credit $3,000
The capital accounts show $19,000 for Wallace, $8,000 for Posey and $0 for Edmon. Give the journal entry for final distribution for the partners. (Capital Deficiency, Partner Can Pay)
Wallace, Capital - Debit $19,000
Posey, Capital - Debit $8,000
Cash - Credit $27,000
During the liquidation of the partnership Edmon Cannot Pay her $3,000 capital deficiency, give the journal entry for Wallace and Posey to absorb it.
Wallace, Capital - Debit $1,5000
Posey, Capital - Debit $1,500
Edmon, Capital - Credit $3,000
To transfer Edmon's deficiency to Wallace and Posey