Fundamental-Accounting-Principles-(12)

AccountingforPartnershipsChapter12PowerPointEditor:BethKane,MBA,CPACopyright©2015McGraw-HillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGraw-HillEducation.12-C1:PartnershipFormofOrganization212-3PartnershipFormofOrganizationPartnershipAgreementVoluntaryAssociationLimitedLifeTaxationUnlimitedLiabilityMutualAgencyCo-OwnershipofPropertyC1312-4OrganizationswithPartnershipCharacteristicsLimitedPartnerships(LP)•Generalpartnersassumemanagementdutiesandunlimitedliabilityforpartnershipdebts.•Limitedpartnershavenopersonalliabilitybeyondinvestedamounts.LimitedLiabilityPartnerships(LLP)•Protectsinnocentpartnersfrommalpracticeornegligenceclaims.•Moststatesholdallpartnerspersonallyliableforpartnershipdebts.LimitedLiabilityCompanies(LLC)•Membershavesamelimitedliabilityfeatureasownersofacorporation.•Alimitedliabilitycorporationtypicallyhasalimitedlife.C1412-5ChoosingaBusinessFormManyfactorsshouldbeconsideredwhenchoosingtheproperbusinessform.C1512-P1:OrganizingaPartnership612-7OrganizingaPartnershipPartnerscaninvestbothassetsandliabilitiesinthepartnership.Assetsandliabilitiesarerecordedatanagreed-uponvalue,normallyfairmarketvalue.Assetcontributionsincreasethepartner’scapitalaccount.Withdrawalsfromthepartnershipdecreasethepartner’scapitalaccount.P1712-8OrganizingaPartnershipOn1/11,KaylaZaynandHectorPerezorganizeapartnershipcalledBOARDS.Zayn’sinitialinvestmentis$7,000cash,$33,000inboardingfacilities,andanotepayablefor$10,000ontheboardingfacilities.Perez’sinitialinvestmentis$10,000cash.P1812-9OrganizingaPartnershipInaccountingforpartnerships:1.Partners’withdrawalsaredebitedtotheirownseparatewithdrawalsaccount.2.Partners’capitalaccountsarecredited(ordebited)fortheirsharesofnetincome(ornetloss)whenclosingtheaccountsattheendoftheperiod.3.Eachpartner’swithdrawalaccountisclosedtothatpartner’scapitalaccount.Separatecapitalandwithdrawalsaccountsarekeptforeachpartner.P19NEED-TO-KNOWLeBronandDurantorganizeapartnershiponJanuary1.LeBron’sinitialnetinvestmentis$1,500,consistingofcash($350),equipment($1,650),andanotepayablereflectingabankloanforthenewbusiness($500).Durant’sinitialinvestmentiscashof$800.Theseamountsarethevaluesagreedonbybothpartners.Preparejournalentriestorecord(1)LeBron’sinvestmentand(2)Durant’sinvestment.DateDebitCreditJan.1Cash350Equipment1,650Notepayable500LeBron,Capital1,500Cash800Durant,Capital800GeneralJournalTorecordinvestmentofLeBronTorecordinvestmentofDurantJan.1P11012-P2:DividingIncomeorLoss1112-12DividingIncomeorLossThreefrequentlyusedmethodstodivideincomeorlossareallocationon:1.Statedratios.2.Capitalbalances.3.Services,capital,andstatedratios.Partnersarenotemployeesofthepartnershipbutareitsowners.Thismeanstherearenosalariesreportedasexpenseontheincomestatement.Profitsorlossesofthepartnershiparedividedonsomeagreeduponratio.P21212-13AllocationonStatedRatiosInthepartnershipagreement,Zaynistoreceive2/3andPerez1/3ofpartnershipincomeorloss.Ifthepartnershipincomeis$60,000,wewillallocatetheincometopartnersasfollows:$60,000×2/3=$40,000P21312-14AllocationonCapitalBalancesIntheirpartnershipagreement,ZaynandPerezagreetoallocateprofitsandlossesonthebasisoftheirbeginningcapitalbalances.BalanceRatioIncomeAllocationK.Zayn,Capital30,000$75%60,000$45,000$H.Perez,Capital10,00025%60,00015,000Totals40,000$100%60,000$Dec31IncomeSummary60,000K.Zayn,Capital45,000H.Perez,Capital15,000Toallocateincometopartner'scapital.P21412-15AllocationonServices,Capital,andStatedRatiosZaynandPerezhaveapartnershipagreementwiththefollowingconditions:1.Zaynreceivesa$36,000annualsalaryallowanceandPerezreceivesanallowanceof$24,000.2.Eachpartnerisallowedanannualinterestallowanceof10%ontheirbeginningcapitalbalance.3.Anyremainingbalanceofincomeorlossisallocatedequally.Netincomeis$70,000.P21512-16ZaynPerezRemainder70,000$36,000$24,000$10,0003,0001,0006,0003,0003,000-42,00028,000IncometoeachpartnerNetincomeIncomeAllocationSalariesInterestEqualallocationZaynPerezRemainder70,000$36,000$24,000$10,0003,0001,0006,0003,0003,000-42,00028,000IncometoeachpartnerNetincomeIncomeAllocationSalariesInterestEqualallocationAllocationonServices,Capital,andStatedRatiosZaynPerezRemainder70,000$36,000$24,000$10,0003,0001,0006,0003,0003,000-42,00028,000IncometoeachpartnerNetincomeIncomeAllocationSalariesInterestEqualallocationZaynPerezRemainder70,000$36,000$24,000$10,0003,0001,0006,0003,0003,000-42,00028,000InterestEqualallocationIncometoeachpartnerNetincomeIncomeAllocationSalaries$30,000×10%=$3,000$10,000×10%=$1,000P2$6,000×½=$3,0001612-17ZaynPerezRemainder50,000$36,000$24,000$(10,000)3,0001,000(14,000)3,0003,000(20,000)42,00028,000InterestEqualallocationIncometoeachpartnerNetincomeIncomeAllocationSalariesZaynPerezRemainder50,000$36,000$24,000$(10,000)3,0001,000(14,000)3,0003,000(20,000)42,00028,000InterestEqualallocationIncometoeachpartnerNetincomeIncomeAllocationSalariesAllocationonServices,Capital,andStatedRatiosZaynPerezRemainder50,000$36,000$24,000$(10,000)3,0001,000(14,000)3,0003,000(20,000)42,00028,000InterestEqualallocationInco