978-0078025877 Chapter 15 Solution Manual Part 1

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

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

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.