Partnership Accounting

Question 1

How are capital contributions with a mortgage attached recorded in a partnership for financial statement purposes?

Answer 1

Calculating the capital balance when property contributed has a mortgage results in the FV of the Asset being netted against the Liability

Question 2

If no goodwill is recorded upon admission of a new partner - which method is used for recording the new partner’s interest?

Answer 2

The bonus method:

Old Partnership Equity+ New Partner Contribution
: New Partnership Equity
x New Partner %
: New Partner Equity AmountNew Partner Contribution - New Partner Equity Amount
: Bonus to Prior Partners using same allocation as P/L

Question 3

If goodwill is recorded upon admission of a new partner - how is the partner’s interest recorded?

Answer 3

Using the goodwill method:

New Contribution / New Equity % : Partnership Value

Implied Value of Partnership - Capital Accounts of all partners
: Goodwill to Old Partners

Under the Goodwill Method - the new Partner is paying an amount for a certain percentage stake in the partnership. For instance if they pay $1000 for a 25% stake - then it is assumed that the Partnership is worth $4 -000 ($1 -000/25%)

Question 4

At what value should assets contributed to a partnership be recorded? What value for liabilities assumed by the partnership?

Answer 4

Fair Value for assets contributed.

Present value of remaining cash flows for liabilities assumed.

Question 5

How are capital account credited for contributions

Answer 5

FV of property less liabilities

Question 6

When are unidentifiable assets recognized

Answer 6

Using goodwill method, not bonus method

Question 7

What amounts credit partner accounts wen allocated income

Answer 7

Credits to parent account based earnings after interest, salary and bonus

Question 8

Calculate allocation of income

Answer 8

Beg cap bal + interest + salary + bonus +/- distribution of residual

Question 9

Calculate weighted average capital balance

Answer 9

Cap bal (until change made) x months/12 + cap bal until another change made x months/12

Question 10

How is the distribution of cash decided in a liquidation

Answer 10

Based on capital balance after income , advances, gain, loss

Question 11

Calculate statement of liquidation

Answer 11

Beg bal - loans due to partner - allocation of g/l on sale of assets - allocation of income = adjusted capital balances

Question 12

what percentages are used to allocate bonus in bonus method

Answer 12

Old profit and loss percentages

Question 13

How is bonus paid to exiting partner calculated

Answer 13

Cash paid for interest - (payment of loan balance + capital balance )

Question 14

What are steps in calculating bonus or goodwill

Answer 14

Restate assets to FV

Adjust withdrawing partner capital account for amount received

Question 15

How is any payment in excess of retired partners capital balance treated

Answer 15

Reduce other capital accounts

Question 16

What is the liquidation safe installment method

Answer 16

Unsold assets are reported at $0 and book value of loss is distribute ld to partners based on profit and loss ratios

Question 17

How is the value of stock calculate when incorporating

Answer 17

Assets and liabilities revalued to FV at thee date of incorporation

CS - par x shares
APIC- FMV - par x shares