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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
Q15-1 Partnerships are a popular form of business because they are easy to form
(informal methods of organization) and because they allow several individuals to
Q15-2 The major provisions of the Uniform Partnership Act (UPA) of 1997 have been
Q15-3 The types of items that are typically included in the partnership agreement
include:
a. The name of the partnership and the names of the partners
b. The type of business to be conducted by the partnership and the duration of the
partnership agreement
Q15-4 (a) Separate business entity means that the partnership is a legal entity
separate and distinct from its partners. The partnership can own property in its own
name, can sue, be sued, and can continue as an entity even though the membership of
the partners changes with new admissions or with partner disassociations.
(b) Creditors view each partner as an agent of the partnership capable of transacting in
Copyright © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded,
distributed, or posted on a website in whole or part.
Q15-5 A deficiency in a partner's capital account would exist when the partner's share
Q15-6 The percentage of profits each partner will receive, along with the allocation of
$60,000 profit, is calculated as follows:
Percentage
Profit to be
of Profits
Allocated
Allocation
Partner 1
4/15 = 26.67%
x
$60,000
=
$16,000
Partner 2
6/15 = 40.00%
x
$60,000
=
$24,000
Partner 3
5/15 = 33.33%
x
$60,000
=
$20,000
Q15-7 The choices of capital balances available to the partners include beginning
capital balances, ending capital balances, or an average (usually weighted-average)
Q15-8 Salaries to partners are generally not an expense of the partnership because
salaries, like interest on capital balances, are widely interpreted to be a result of the
respective investments and are used not in the determination of income, but rather in the
determination of the proportion of income to be credited to each partner's capital
Copyright © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded,
distributed, or posted on a website in whole or part.
C15-1 Partnership Agreement
a. The partnership agreement should be as specific as possible to avoid later
1. The name of the partnership and the names of the partners
2. The type of business to be conducted and the term, if any, of the
3. The initial capital contribution of each partner and the method(s) of
4. The income or loss sharing procedures
5. Procedures for changes in the partnership such as admission of new
6. Any other specific procedures important to the partners
b. Salaries and bonuses to partners are part of the income distribution process
regardless of how they are reported by the partnership. Some partnerships prefer to
1. The capital balance to be used as the base for interest: Beginning of
balances.
2. The rate of interest to be paid, or the basis by which the rate is to be
3. When interest is to be determined in the profit or loss distribution process.
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
There are online sources of examples of partnership agreements, the Uniform Partnership
Act of 1997, a Statement of Partnership Authority, and you can find our state’s partnership
regulations through our Secretary of State’s website. I urge you to be sure to satisfy your
concerns before you enter the partnership. Joining a partnership is a significant decision that
involves potential personal liability for the partnership’s obligations, including those incurred
by the other partners. Alternative business forms are available such as incorporating, for
which you should consult with an attorney who has had experience in working with small
business corporations.
