Get a Custom Essay Paper that meets your expectations by clicking ORDER
Partnerships
Order Instructions
Complete two exercises in accounting for the equity of a pass-through entity, such as an LLC, limited partnership, or general partnership structure.
Partnerships are a common and popular form of business structure.
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
- Competency 3: Evaluate partnership accounting issues.
- Calculate needed partner investment.
- Calculate goodwill resulting from admission of a new partner.
- Calculate bonus resulting from admission of a new partner.
- Calculate partnership capital balances.
- Prepare a partnership liquidation schedule.
Context
The partnership form of business ownership is popular for many reasons, including the ease of creation and the avoidance of the double taxation inherent in corporate ownership. However, the unlimited liability normally restricts the growth potential for most partnerships. As a result, most partnerships remain small in relation to their larger corporate brothers.
During the formation and operation stages of a partnership’s life, several issues require closer study, because of their impact on the financial status of individual partners. Initially, there is the issue of allocating the initial contributions of each partner in relation to their ownership and liability share. During ongoing operations, the issue of allocating annual income and losses sustained by the business must be handled. Lastly, the issues of taking on new partners and the withdrawal of current partners will affect the financial stability of the partnership.
Although a business unit can exist indefinitely through the periodic admission of new partners, termination of business activities and liquidation of property can take place for a number of reasons. Several important financial issues surface during these times in the life of a partnership.
Questions to consider
erested friend, or a member of the business community.
- How are partner contributions valued and recorded?
- How is annual income allocated among individual capital accounts?
- What restructuring takes place when new partners enter and existing partners leave?
- Under what circumstances would a partnership be liquidated?
- How should an accountant report liquidation of a partnership?
- How are assets distributed during liquidation?
Consider the following case:
A client of the CPA firm of Smith and Wesson is a medical practice of seven local doctors. One doctor has been sued for several million dollars as the result of a recent operation. Because of what appears to be this doctor’s poor judgment, a patient died. Although that doctor was solely involved with the patient in question, the lawsuit names the entire practice as a defendant. Originally, four of these doctors formed this business as a general partnership. However, five years ago, the partners converted the business to a limited liability partnership based on the laws of the state in which they operate.
- What liability do the other six partners in this medical practice have in connection with this lawsuit?
- What factors are important in determining the exact liability, if any, of these six doctors?
Resources
Required Resources
The following resources are required to complete the assessment.
- Partnerships Excel Workbook. – will send the attachment
Resources
- Carmichael, D. R., & Graham, L. (2012). Accountants’ handbook, volume 1: Financial accounting and general topics (12th ed.). Hoboken, NJ: John Wiley & Sons.
- Chapter 20, “Partnerships and Joint Ventures.”
Hoyle, J. B., Schaefer, T., & Doupnik, T. (2014). Fundamentals of advanced accounting (6th ed.). New York, NY: McGraw-Hill Education.
- Chapter 9, “Partnerships: Formation and Operation.”
- Chapter 10, “Partnerships: Termination and Liquidation.”
Assessment Instructions
Complete Exercises 1 and 2 in the Partnerships Excel Workbook, linked in the Required Resources for this assessment. All financial information and applicable instructions are provided on each exercise worksheet.
Exercise 1: Partnership Operations
- Calculate partnership capital balances.
- Calculate needed partner investment.
- Calculate goodwill resulting from admission of a new partner.
- Calculate bonus resulting from admission of a new partner.
Exercise 2: Partnership Liquidation Schedule
- Prepare a partnership liquidation schedule.
Get a Custom Essay Paper that meets your expectations by clicking ORDER