Accounting for Partnerships
ASSIGNMENT CLASSIFICATION TABLE
Brief Exercises A Problems B Problems
Study Objectives 1. Identify the characteristics of the partnership form of business organization. 2. Explain the accounting entries for the formation of a partnership. 3. Identify the bases for dividing net income or net loss. 4. Describe the form and content of partnership financial statements. 5. Explain the effects of the entries to record the liquidation of a partnership. *6. Explain the effects of the entries when a new partner is admitted. *7. Describe the effects of the entries when a partner withdraws from the firm.
Questions 1, 2, 3, 4, 12
6, 7, 8, 9, 10
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(c) Co-ownership of property. Partnership assets are co-owned by all the partners. If the partnership is terminated, the assets do not legally revert to the original contributor. Each partner has a claim on total assets equal to his or her capital balance. This claim does not attach to specific assets the individual partner contributed to the firm. (a) Mutual agency. This characteristic means that the act of any partner is binding on all other partners when engaging in partnership business. This is true even when the partners act beyond the scope of their authority, so long as the act appears to be appropriate for the partnership. (b) Unlimited liability. Each partner is personally and individually liable for all partnership liabilities. Creditors’ claims attach first to partnership assets and then to personal resources of any partner, irrespective of that partner’s equity in the partnership. The advantages of a partnership are: (1) combining skills and resources of two or more individuals, (2) ease of formation, (3) freedom from governmental regulations and restrictions, and (4) ease of decision making. Disadvantages are: (1) mutual agency, (2) limited life, and (3) unlimited liability. A limited partnership is used when a general partner(s) wish to raise cash without involving outside investors in management of the business. Limited partners in this case have limited personal liability for business debts as long as they don’t participate in management. The