Exam 19: Accounting for Partnerships

In the liquidation of the partnership, adjusting and closing entries are made when normal operations are discontinued.

Partners may agree that the most equitable method of allocating profits and losses is to base salaries on the services rendered by each partner.

Partnerships are not subject to federal income taxes.

The basis on which profits and losses are to be shared is a matter of agreement between the partners and not necessarily the same as their investment ratio.

The basis on which profits and losses are to be shared between partners is

The statement of partners' equity reflects the equity of each partner and summarizes the allocation of net income for the year.

Liquidation of a partnership usually means that assets are sold, liabilities are paid, and remaining cash is distributed to the partners.

Delisa invests office equipment with a fair market value of $70,000, delivery equipment with a fair market value of $89,000, and cash of $54,000. She owes $68,000, represented by a note on the delivery equipment. If Delisa's office equipment cost $80,000 and has accumulated depreciation of $30,000, the amount at which the asset should be entered on the books of the new partnership would be

Assuming there are no known bad debts when two single proprietors decide to combine their businesses, it is usual practice to enter the full amount of the Accounts Receivable as a debit and the amount of the Allowance for Bad Debts as a credit in placing each partner's investment in the books of the partnership.

If the partnership cannot pay a bill, creditors will expect payment from the personal assets of the partners.

Kate DeLeo and Joe Desmond decided to form a partnership on January 1. DeLeo invested $50,000 and Desmond invested $30,000. On December 31, the end of the fiscal year, a net income of $100,000 was earneD.Required: Determine the amount of net income that DeLeo and Desmond would receive under each of the following independent assumptions: a. There is no agreement concerning the distribution of net income. b. Each partner is to receive 10% on their original investment, and the remainder divided equally. c. DeLeo and Desmond are to receive a salary allowance of $35,000 and $45,000 respectively, and the remainder divided equally. d. Each partner is to receive 10% on their original investment, DeLeo and Desmond are to receive a salary allowance of $30,000 and $40,000 respectively, and the remainder divided as follows: 60% to DeLeo and 40% to Desmond.

One of the primary characteristics of the partnership form of organization is its limited liability.

A gain on the sale of assets in the liquidation process is recognized and allocated to the partners' capital accounts.

Under the laws of some states, all partners may limit their liability for the debts of the partnership.

When two proprietors decide to combine their businesses, generally accepted accounting principles usually require that noncash assets be taken over at their

The allocation of net income and its impact on the partners' equity balances should be disclosed in the financial statements.

In the liquidation of the partnership, the first cash realized is allocated to the creditors.