Partenerships

Question 1

How are assets valued?

Answer 1

At fair value

Question 2

How are liabilites valued?

Answer 2

At Present Value

Question 3

How is contributed capital affected by noncash contributions that are subject to mortgage?

Answer 3

The capital account is credited at the fair value of the asset minus the mortgage

Question 4

When a partner contributed both assets and liabilities, how is the contributed capital affected?

Answer 4

FV of assets minus present value of liabilities

Question 5

What are the three methods used when admitting a partner to a partnership?

Answer 5

Bonus Method, Goodwill Method, and Exact Method

Question 6

What is the bonus method?

Answer 6

1. New Partner contributes capital for a percentage
2. Contributed cash is added to cash
3. Total Partner assets, to include new partner contribution, are multiplied by new partner percentage to find new partner capital account balance.
4. Remaining partner contribution is allocated to old partners based on their old percentage of partnership before the new partner was admitted

Question 7

What is the goodwill method?

Answer 7

1. The amount the new partner contributes is his capital balance.
2. The new partner capital balance is divided by his percentage in the partnership
3. Goodwill is the amount in excess of the new assets.
4. Goodwill is then allocated by the percentage that the partners held before the admission of the new partner.

Question 8

What is the exact method?

Answer 8

No goodwill or bonus is recorded