Where do you find the information on how to allocate partnership income/loss?
The partnership agreement.
What is a business entity that give limited liability protection?
LP, LLP, LLC, S Corporation, C Corporation
How many people must voluntarily associate to form a partnership?
At least 2
What are the equity accounts called for a partnership?
Capital accounts
What does a liquidation mean?
The partnership is shut down and all assets are sold off
What are the three methods to allocate partnership income/loss?
Stated ratios, Capital balances, Salary allowance/Interest allowace/Remainder
What is a type of business entity that protects partners from other partner's liabilities (ie. malpractice lawsuits)
LLP
What is mutual agency?
Any partner can bind the partnership to any contract
What are the equity accounts for an LLC called?
Members Equity
What is it called when a partner has a debit balance in their capital account during liquidation?
Capital deficiency
If the partnership agreement doesn't state how to allocate income and loss, how do you allocate?
Equally
What is the only type of business entity that is subject to income taxes?
C Corporation
What type of liability does a general partnership have?
Unlimited liability
True or False: All income/loss in a partnership is closed to one general capital account.
False: Income/Loss is allocated to each partner's capital account
What is the first step of a partnership liquidation?
Gain or loss on liquidation is allocated to the partners
In a partnership, Ally and Bri agree to a 60/40 split of income and loss. If the net income is $275,000 how much income is allocated to Bri?
$110,000 (275,000*40%)
What is the most commonly used business entity because of it's flexibility?
LLC
How is a partnership taxed?
All income/loss is flowed through to the partners' personal income tax returns.
True or False: A partner can contribute assets and liabilities to a partnership
True
What is the last step of a partnership liquidation?
Any remaining cash is distributed to partners according to their capital balances
In a partnership, Al and Brian agree to allocate net income off of their beginning capital balances ($30,000 and $70,000 respectively). If the net income is $325,000 how much is allocated to Al?
$97,500 (325,000*30%)
What type of business entity is similar to partnerships because it's a flow-through entity(ie. no income tax)?
S-Corporation
What happens when a partnership admits a new member, or a current member leaves the partnership?
The current partnership liquidates and a new partnership is immediately formed (limited life)
Avery and Brianna form a partnership. Avery contributes $30,000 of cash, a building worth $100,000, and a mortgage on that building of $75,000. What is the balance of Avery's capital account?
$55,000 (30+100-75)
After liquidation, what is the amount leftover in all partnership accounts?
$0