Partnership: The company is considering forming a partnership and wants to be su
ID: 2733863 • Letter: P
Question
Partnership: The company is considering forming a partnership and wants to be sure it understands the key issues regarding partnership formation, income distribution, and liquidation.
A. Explain the process and methods used to account for partnership formation. How do these methods impact the firm’s balance sheet?
B. Illustrate how the company could split profits and losses.
C. Describe what happens if the partnership doesn’t do well and the company has to dissolve it, or one of the partners becomes insolvent.
D. Illustrate the dissolution process by creating a hypothetical cash distribution schedule. Ensure all information is entered accurately.
Explanation / Answer
a)Partnership is one when more than one person come together for doing business by contributing to the capital formation. The capirtal account is opened on their names in balance sheet and their transactions is accounted there. Types are general,limited or joint venture.In general partnership all are called general partners. In limited lianility there are general partners as well as limited partners.
b)The profit and losses are splitied accoerding to the % of capital contributed to the overal account they formed. If the profit is $100,000 and the contribution of A & B to form capital is 40% and 60% the respective profit earned is (40%*100,000=40,000) and (60%*100,000=60,000)
c)If the partnership is limited liability partnership then ast time of insolvent all the capital account is used to repay the creditors.The limited partners liability is limited to amount they invested while general partners has to repat the remaining.