Chapter 15 SM 8e

Chapter 15 SM 8e - Chapter 15 1 CHAPTER 15 PARTNERSHIPS:...

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Chapter 15 1 CHAPTER 15 PARTNERSHIPS: FORMATION, OPERATION, AND CHANGES IN OWNERSHIP ANSWERS TO QUESTIONS Q15-1 Partnerships are a popular form of business because they are easy to form (informal methods of organization), and because they allow several individuals to combine their talents and skills in a particular business venture. In addition, partnerships provide a means of obtaining more equity capital than a single individual can invest and allow the sharing of risks for rapidly growing businesses. Partnerships are also allowed to exercise greater freedom in their choice of accounting methods. Q15-2 The major provisions of the Uniform Partnership Act (UPA) of 1997 have been enacted by most states to regulate partnerships operating in those states. The UPA 1997 describes many of the rights of each partner and of creditors during creation, operation, or liquidation of the partnership. Q15-3 The types of items that are typically included in the partnership agreement include: a. The name of the partnership and the names of the partners b. The type of business to be conducted by the partnership and the duration of the partnership agreement c. The initial capital contribution of each partner and how future capital contributions are to be accounted for d. A complete discussion of the profit or loss distribution, including salaries, interest on capital balances, bonuses, limits on withdrawals in anticipation of profits, and the percentages used to distribute any residual profit or loss e. Procedures used for changes in the partnership such as methods of admitting new partners and procedures to be used on the retirement of a partner f. Other aspects of operations the partners decide on, such as the management rights of each partner, election procedures, and accounting methods Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 8e
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Q15-4 (a) Separate business entity means that the partnership is a legal entity separate and distinct from its partners. The partnership can own property in its own name, can sue, be sued, and can continue as an entity even though the membership of the partners changes with new admissions or with partner dissociations (b) Creditors view each partner as an agent of the partnership capable of transacting in the ordinary course of the partnership business. Creditors may use this reliance unless the creditors receive a notification that the partner lacks authority for engaging in a specific type of transaction that would be used between the creditor and that partner. The partnership should file a Statement of Partnership Authority to specifically state any limitations of authority of specific partners. This voluntary statement is filed with the Secretary of State and the clerk of the county in which the partnership operates. The Statement of Partnership Authority is sufficient notice to state a partner’s authority for real estate transactions. (c) In the event the partnership fails and its assets are not sufficient to pay its liabilities,
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Chapter 15 SM 8e - Chapter 15 1 CHAPTER 15 PARTNERSHIPS:...

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