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F2 - M8
Terms in this set (23)
Purchase or Sale of Existing Partnership Interest Journal Entry
How are assets contributed to a partnership valued?
at Fair Value (FV)
How are liabilities contributed to a partnership valued?
at Present Value (PV)
Difference for tax in valuing assets contributed to partnership
for tax, assets are recorded at NBV
3 methods of calculating creation of new partnership interest
When do you use the exact method?
when purchase price = BV of capital account purchased
how to determine exact amount partner needs to pay to acquire a certain % interest?
1/4 interest ---> 4-1 = 3 so divide total current capital account by 3
When do you use the bonus method?
when the purchase price is > or < BV of capital account purchased
purchase price is > BV of capital account purchased
existing partners get a bonus
purchase price is < BV of capital account purchased
new partner gets a bonus
When do you use the goodwill method?
-when implied value > BV of capital account
-must elect to do this
how to calculate goodwill method
-use new partner's purchase price x number of partners to determine implied value
-excess over total capital account value is goodwill
profit and loss distribution of a partnership
-if not otherwise stated, both are shared equally
-note that payments for interest, salaries, and bonuses are deducted prior to determining p&l allocation
2 methods for withdrawal of a partner
*NO exact method
bonus method - who gets the bonus?
allocated to REMAINING partners
how to calculate withdrawal using the bonus method
1) adjust assets up to FV and then recognized bonus
goodwill method - who gets the goodwill?
allocated to ALL partners (including partner who withdrew)
liquidation of partnership - order of preference
1) Outside creditors
2) Partner's who are creditors (current or noncurrent)
3) Partner's capital
4) Gain/Loss excess
liquidation & losses
all losses must be accounted for before making distributions to partners
how is liquidation done?
convert noncash assets and distribute - excess can result in a gain or loss
what is a capital deficiency?
when a partner has a debit balance for their capital account - they are liable to the partnership for money
how can you offset a capital deficiency?
with a loan account
what happens if a negative partner runs out of money?
the remaining partners must assume the loss according to their respective p&l ratios
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