Accounting II Ch. 12
Terms in this set (36)
unincorporated association of two or more people to pursue a business for profit as co-owners
some courts have ruled that partnerships are created by the actions of individuals even when there is not express agreement (falls under which characteristic of partnership?)
1) names and contributions
2) rights and duties
3) sharing of incomes and losses
4) W/D arrangement
5) dispute procedures
6) admission and W/D of partners
7) rights and duties in the event of a partner dies
what are the 7 components to a partnership contract?
Death, bankruptcy, or any event taking away the ability of a partner to entree or fulfill a contract ends a partnership. A partner can also terminate the partnership.
a partnership is not subject to taxes on ___
each partner is fully authorized agent of the partnership and can bind the partnership in a contract within the scope of the partnership business
each partner can be called on to pay a partnership's debts
mutual agency and unlimited liability
co-ownership of property
partnership assets are owned jointly by all partners, partners have claim on the assets based on their capital account and the contract
one partner is a general partner and the other partner is a limited partner
in a limited partnership this partner assumes management duties and unlimited liabilities for debts
in a limited partnership this partner has no personal responsibility beyond the amounts they invest
limited liability partnership
this type or partnership works to protect innocent partners from malpractice or negligence claims resulting from the other partner
100 of fewer stockholders that are treated as a corporation, but they don't pay income taxes
Sub Chapter C (C-Corporations)
100 of fewer stockholders that are treated as a corporation, but they do pay income taxes
limited liability company
members are protected from liability, limited members can participate in management
1) uses a capital account for each partner
2) uses a W/D account for each partner
3) allocated net income or loess to partners according to the partnership agreement
what are the three basic principles to partnership accounting?
partners' W/D are debited to their own separate _____
partners' _________ are credited for their shares of net income when closing accounts at the end of the period
each partners' ____ account is close to that partners' capital account
1) ratio basis
2) ratio of capital balances
3) salary and interest allowances and remainder according to a ratio
3 methods to divide income or loss
3 methods to divide income or loss: gives each partner a fraction of the total
3 methods to divide income or loss: assigns an amount based on the ratio of each partner's relative capital balance
salary and interest allowances and remainder according to a ratio (services, capital, and stated ratio)
3 methods to divide income or loss: recognizes that service and capital contributions of partners often are not equal
1) beginning capital balance
2) additional investments
3) allocate income or loss
5) ending capital balance
what five things does the statement of partners' equity show?
1) by purchasing an interest from one or more current partners
2) investing cash or other assets in the partnership
what are the two ways to admit a partner to the company?
purchase of partner interest
personal transaction between one or more current partners and the new partner
investing assets in a partnership
accepting assets in a transaction between the new partner and partnership
interest and salary
what are the two main factors in deciding how to divide the income?
when he needs cash or partner has exceptional talents
when does a new partner get a bonus?
1) sell his/her interest to another person who pays for it in cash or other assets
2) cash or other assets of the partnership are distributed to the W/D partner in the settlement of his/her interests
what are the two ways to W/D a partner?
1) closing books to determine income or loss since the end of the previous period
2) determining and recording current market values for both assets and liabilities
what are two steps to deal with the death of a partner?
1) record the sale of non-cash assets
2) pay all liabilities
3) distribute remaining cash to partners
three steps to partnership liquidation
no capital deficiency
all partners have a 0 balance in their capital account for final distribution of cash
at lest one partner has a debit balance in his/her capital account at the point of final cash distribution
1) voluntary association
2) partnership contract/agreement
3) limited life
4) taxation (income is not taxed)
5) mutual agency
6) unlimited liability
7) co-ownership of assets
what are 7 characteristics of a general partnership?
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