12 - Partnerships Chapter 12 1 Characteristics of a...

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1 Partnerships Chapter 12
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2 Characteristics of a Partnership It is a voluntary association of two or more persons who co-own a business for a profit. A partnership combines: assets talent experience
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3 Characteristics of a Partnership 1. Co-ownership of property 2. No partnership income taxes Partnership net income is divided and taxable individually 3. Partners’ equity accounts Each partner has his/her capital account and withdrawal account.
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4 Characteristics of a Partnership 1. Limited Life: The addition or withdrawal of a partner terminates the partnership. 2. Mutual Agency: Every partner can bring the business to a contract within the scope of regular business operations. 3. Unlimited Liability: Each partner has unlimited personal liability for the debts of the business.
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5 Types of Partnerships There are two basic types of partnerships. General partnerships Each partner is a co-owner with all privileges and risks of ownership. Limited partnerships Has two classes of partners. There must be at least one general partner who takes primary responsibility. The limited partners has limited personal liability.
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6 Partnership Advantages/ Disadvantages can raise more capital. combines abilities of more than one person. less expensive to organize than corporation. fewer governmental regulations than corporation. partnership agreement difficult to formulate. relationships among partners may be fragile. mutual agency and unlimited liability create personal obligations for partners. Advantages Disadvantages
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7 Accounting Issues: 1. Formation of Partnership 2. Sharing Partnership Income 3. Sale of Partnership Interest 4. Entry of new Partners 5. Withdrawal of Partners 6. Liquidation of Partnerships 7. Partnership Financial Statements
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8 Forming a Partnership The start-up is journalized in the same way as for a proprietorship. Partners invest assets and related liabilities at agreed-upon values. The excess contribution (assets – liabilities) is credited to the equity account for that person.
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9 Partnership Formation Example David Cohen and Krista Largo formed a partnership on June 1, 2008, to sell advanced technological devices. David’s contributions are cash of $300,000 and equipment costing $40,000 that has a book value of $27,000 and a current market value of $30,000. What is the journal entry?
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10 June 1, 2008 Cash 300,000 Equipment 30,000 David Cohen, Capital 330,000 To record Cohen’s investment in the partnership. Partnership Start Up
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Partnership Start Up Krista’s contributions are cash of $10,000 and a building costing $290,000 that has a book value of $245,000 and a current market value of $400,000. What is the journal entry?
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This note was uploaded on 10/07/2008 for the course BUS 343 taught by Professor Leung during the Fall '08 term at Kwantlen Polytechnic University.

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12 - Partnerships Chapter 12 1 Characteristics of a...

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