MGAB03H3 Lecture Notes - Capital Account, Financial Statement

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7 May 2013

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Characteristics of partnerships: co-ownership of property, association of individuals, unlimited liability, limited life, mutual agency, division of income. If partnership is dissolved, assets are not returned to original contributor but rather gain/loss is distributed between partners. Partnerships can be formed legally or casually. Assets can be owned in the name of the partnership. Partnerships cannot be taxed as a separate entity. Each partner is liable for all partnership liabilities. Anything one partner does, the other partner is responsible for. Any change in ownership ends the partnership. Partnership dissolution occurs when a partner withdraws or a new partner is admitted. If continuing partners agree, operations can continue without interruption by forming a new partnership. Any actions one partner does are bonded to the other partners. Each partner acts on behalf of the others when they are doing business. Net income/loss must be divided between partners. The amount divided is based on an income ratio previously determined.

Related Questions

Business law Agency and partnership 1.The creation of an agencyalways required a written document authorizing the agent to act forthe principal and signed by both the principal and the agent.T/F

2.No consideration is required to create an agency relationship.T/F

3.Failure to notify partner with whom an agent has dealt of hertermination can create liability to those parties under the theoryof apparent authority. T/F

4.Liability for the tortious acts of an agent will depend uponhow much control the principle had over the agent. T/F

5.General partner stand only to lose their investment in thepartnership if the partnership goes broke. T/F

6.Under the doctrine of respondent superior the principal isliable for any harm caused by his agent, when the agent is actingwithin the scope of his authority. T/F

7.If the partners fail to write down the proportional ownershipinterest then they will be presumed to be equal partners. T/F

8.In the absence of a written agreement, any partner can refuseto allow anyone to become a partner in his partnership, since it isa voluntary relationship. T/F

9.What is known by the agent is presumed to be known by theprincipal. T/F

10.A limited partnership only has limited partners. T/F

11.Limited partners have a limited right to manage thepartnership affairs. T/F

12.Partners cannot use the general partnership agreement to denythe claims of creditors of the partnership; if the assets of thepartnership are not enough to the debt of the partnership thenpartners are personally liable for the debts of the partnership.T/F

13.A partnership is not a tax paying entity, but must file a taxreturn. T/F

14.The principal of Marshaling of assets means that creditors ofan individual partner must first exhaust his assets before takingany partnership property. T/F

15.The statute of frauds does not generally require anypartnership agreement to be in writing. T/F

violettortoise959

Title: Business Structure, Liability, and Partnership Agreement

Develop a hypothetical business you would consider starting with a friend or relative.

Imagine that the friend or relative has sufficient funds to start the business and that you will be doing most of the work (for example, if you were starting a mobile car wash business, you would be procuring the customers and washing the cars).

Imagine also that you will be performing all the bookkeeping functions for the business.

In a written report, prepare the following:

A report to your partner, containing a detailed description of the differences regarding liability with respect to a sole proprietorship, a general partnership, a limited partnership, and a corporation.

A completed partnership agreement, including the following elements ready for signatures using the partnership agreement included.

Example of Partnership Agreement

Detailed description of the business

Names of the partners

Address of the partnership and the partners

Roles of each of the partners as limited partners, being as complete and detailed as possible (you can also be as imaginative as you need to be with titles and responsibilities )

List of assets provided by each partner

Division of income

Division of partnership liabilities (debts)

Method by which the partnership may be dissolved, including what happens in the event of filing for bankruptcy

(NAME), and (NAME), the below signed hereby enter into this Partnership Agreement on behalf of themselves, their heirs, successors and assigns, and set forth following terms and conditions as constituting the Partnership Agreement in its entirety:

1. The partnership shall go by the following name: (NAME).
2. The partnership's principle place of business shall be (DESCRIBE).

3. The first day that the partnership shall begin business is: (DATE) and it will continue until the partners agree to terminate it or until forced to cease its operations by law.

4. The partnership's operations shall be primarily in the following field or area: (DESCRIBE)

5. The partnership shall be capitalized as follows: For each $ (AMOUNT) (dollars) each partner shall receive (#) shares with contribution being made as follows:

Partner A contributes $(AMOUNT) and shall receive (#) shares, the same being (#) % of the total shares available. Partner B contributes $(AMOUNT) and shall receive (#) shares, the same being (#) % of the total shares available. 6. Losses and gains on contributed capital and other property shall be assigned as follows: (DESCRIBE)

The IRS's general allocation rule shall apply, and gains and losses shall be allocated according to the % of total capital contributed by each partner as set out in paragraph 5 above.

7. Profits and losses shall be allocated according to the same percentage allocation set forth in paragraph #6 above. 8. Salary, if any, for the services rendered shall be determined by unanimous approval of the partners.

Project Partnership Agreement

PARTNERSHIP AGREEMENT

10. Each partner shall maintain both an individual drawing account and an individual capital account. Into the capital account shall be placed that partner's initial capitalization and any increases thereto. The drawing accounts shall be used for withdrawal of amounts, the size of which is limited to $(AMOUNT) on any one day.

11. Adequate accounting records shall be made and maintained. Any partner or his/her agent may review any and all accounting or other records at anytime.

12. The partners designate the following as the Partnership's business and checking accounts into which all the funds of the Partnership shall be placed and maintained: (DESCRIBE)

13. Accounting records and books shall be kept on a (select one) 1. cash basis 2. accrual basis and the fiscal year shall begin on the (#) day of (MONTH) and shall end (#) day of (MONTH).

14. At the close of the fiscal year, there shall be an annual audit conducted by the following accounting firm: (DESCRIBE)

15. The partnership shall dissolve upon the retirement, death, or incapacity of any partner unless the remaining partner elects the option of buying out that partner's share. (DESCRIBE THE DETAILS)

16. Upon termination or dissolution of the Partnership, the Partnership will be promptly liquidated, with all debts being paid first, prior to any distribution of the remaining funds. Distribution shall be made according to the percentage of ownership as set out in paragraph #5 above.

17. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

Project Partnership Agreement

9. Control and management of the partnership shall be split equally amongst the partners.

So agreed, this (#) day of (MONTH), 20 .

________________________ (NAME) ________________________ (NAME)

Review - make sure the following items are included in this agreement!

Detailed description of the business

Names of the partners

Address of the partnership and the partners

Roles of each of the partnersâbe as complete and detailed as possible

List of assets provided by each partner

Division of income

Division of partnership liabilities (debts)

Method by which the partnership may be dissolved

1). All of the following statements are false except

an investment bank is a financial firm that assists organizations in raising funds.

a corporation often deposits excess cash in an investment bank.

an investment bank provides checking services for large corporations.

most investment banks help investors buy and sell a corporation's stock.

under current laws, an investment bank provides services to individuals but cannot provide banking services to corporations.

2). (TCO 5) Dave Harris has just purchased a bond with a face value of $1,000 that pays 6%. The purchase price of the bond was $900, and the bond will mature in 5 years. What is the yield to maturity for this bond?

9.8%

3) (TCO 5) A characteristic of serial bonds is that they

will pay no interest payments.

will have varying issue dates.

will have a series of maturity dates.

cannot be called.

will all mature 10 years from the date of issue.

4).

(TCO 3) All of the following are disadvantages of leasing a vehicle except

automatic ownership interest in the car.

unlimited mileage on the car.

no need to meet credit requirements.

lease payments are likely to be lower than loan payments.

All of the other answers are advantages.

5). (TCO 4) John Brown owns a home in Oakland, California and because of the risk of earthquakes, he decides to purchase _____ to cover potential losses.

building and other structures

additional living expenses

personal property

personal liability

specialized coverage

6). (TCO 4) If Mark Wright obtains a permanent disability as a result of an injury on the job, most likely he will receive _____ as a source of disability income.

his employer

Social Security

worker's compensation

an individual insurance policy

his health insurance policy

7). (TCO 4) A(n) _____ is a document attached to an insurance policy that modifies coverage by adding or deleting a specified condition.

rider

waiver of premium

automatic premium loan

beneficiary

incontestability clause

8). (TCO 6) The Capitalist Mutual Fund's net asset value is $28.25. The fund has liabilities of $3 million and 1,600,000 shares have been issued. What is the value of the fund's portfolio?

9). (TCO 6) A benefit associated with an investment in a real estate limited partnership is that the investor

does not have to worry about capital gains tax.

does not have to pay federal income tax.

does not have to pay state income tax.

can invest in a shopping center or large building by investing as little as $5,000.

faces an investment that is very liquid.

10) (TCO 6) Chuck owns a home worth $140,000, a car valued at $30,000, and miscellaneous assets worth $7,500. He owes $75,000 on the home and $12,000 on the car, and has no other debts. His retirement account, in which he is fully vested, contains $17,500 in mutual funds. He is insured with a $250,000 term life insurance policy. What is his net worth?

11). (TCO 7) Brenda wants to leave a message of encouragement to her grandchildren just in case something happens to her in the near future. She would be interested in preparing a(n)

ethical will.

durable power of attorney.

letter of last instruction.

codicil.

formal will.

12). (TCO 7) Marion would be acting in the capacity of a(n) _____ if she is selected to manage the assets of her 16-year-old niece until the niece reaches the age of 21.

MGAB03H3 Lecture Notes - Capital Account, Financial Statement

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