Flashcards in Partnership Accounting Deck (17):
How are capital contributions with a mortgage attached recorded in a partnership for financial statement purposes?
Calculating the capital balance when property contributed has a mortgage results in the FV of the Asset being netted against the Liability
If no goodwill is recorded upon admission of a new partner - which method is used for recording the new partner's interest?
The bonus method:
Old Partnership Equity
+ New Partner Contribution
: New Partnership Equity
x New Partner %
: New Partner Equity Amount
New Partner Contribution
- New Partner Equity Amount
: Bonus to Prior Partners using same allocation as P/L
If goodwill is recorded upon admission of a new partner - how is the partner's interest recorded?
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%)
At what value should assets contributed to a partnership be recorded? What value for liabilities assumed by the partnership?
Fair Value for assets contributed.
Present value of remaining cash flows for liabilities assumed.
How are capital account credited for contributions
FV of property less liabilities
When are unidentifiable assets recognized
Using goodwill method, not bonus method
What amounts credit partner accounts wen allocated income
Credits to parent account based earnings after interest, salary and bonus
Calculate allocation of income
Beg cap bal + interest + salary + bonus +/- distribution of residual
Calculate weighted average capital balance
Cap bal (until change made) x months/12 + cap bal until another change made x months/12
How is the distribution of cash decided in a liquidation
Based on capital balance after income , advances, gain, loss
Calculate statement of liquidation
Beg bal - loans due to partner - allocation of g/l on sale of assets - allocation of income = adjusted capital balances
what percentages are used to allocate bonus in bonus method
Old profit and loss percentages
How is bonus paid to exiting partner calculated
Cash paid for interest - (payment of loan balance + capital balance )
What are steps in calculating bonus or goodwill
Restate assets to FV
Adjust withdrawing partner capital account for amount received
How is any payment in excess of retired partners capital balance treated
Reduce other capital accounts
What is the liquidation safe installment method
Unsold assets are reported at $0 and book value of loss is distribute ld to partners based on profit and loss ratios