ACCT351 Study Guide - Midterm Guide: Delaware General Corporation Law, Legal Personality, Sole Proprietorship

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redwalrus66

19 May 2019

School

University of Delaware

Department

Accounting

Course

ACCT351

Professor

Coffin

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Document Summary

Interested director transactions: dgcl says you can make a move between two companies you"re involved with after a vote. Incorporators/promotors: set corporation up in the beginning, responsible for any contracts signed until when/if contract is legally transferred to the company. Choice of delaware for incorporating businesses: dgcl is enabling to businesses and flexible, court of chancery is predictable and favorable toward businesses, and provides a level of certainty. Articulate the difference between common stock and preferred stock: preferred stock equity investment that contains a preference over common stock, common stock no par value. Articles of incorporation: birth certificate of a company, 102b7 section of dgcl that allows corporations to waive the duty of care, can"t be changed without shareholder vote. Bylaws: detailed, procedural details, only need a board vote, not shareholder vote, to make changes, shareholders have the right to make amendments (but it is very difficult, if not inconsistent with the law .

Related Questions

Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California, to be operated as a partnership. Gray and Stone will serve as the senior partners because of their years of experience. To establish the business, Gray, Stone, and Lawson contribute cash and other properties valued at $240,000, $210,000, and $105,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations:

Personal drawings are allowed annually up to an amount equal to 10 percent of the beginning capital balance for the year.

Profits and losses are allocated according to the following plan:

A salary allowance is credited to each partner in an amount equal to $8 per billable hour worked by that individual during the year.

Interest is credited to the partnersâ capital accounts at the rate of 12 percent of the average monthly balance for the year (computed without regard for current income or drawings).

An annual bonus is to be credited to Gray and Stone. Each bonus is to be 10 percent of net income after subtracting the bonus, the salary allowance, and the interest. Also included in the agreement is the provision that there will be no bonus if there is a net loss or if salary and interest result in a negative remainder of net income to be distributed.

Any remaining partnership profit or loss is to be divided evenly among all partners.

Because of financial shortfalls encountered in getting the business started, Gray invests an additional $9,500 on May 1, 2016. On January 1, 2017, the partners allow Monet to buy into the partnership. Monet contributes cash directly to the business in an amount equal to a 20 percent interest in the book value of the partnership property subsequent to this contribution. The partnership agreement as to splitting profits and losses is not altered upon Monetâs entrance into the firm; the general provisions continue to be applicable.

The billable hours for the partners during the first three years of operation follow:

	2016	2017	2018
Gray	1,740	2,100	1,910
Stone	1,470	1,200	1,650
Lawson	1,600	1,410	1,340
Monet	0	1,220	1,610

The partnership reports net income for 2016 through 2018 as follows:


2016	$	69,000
2017		(23,400)
2018		160,000

Each partner withdraws the maximum allowable amount each year.

Determine the allocation of income for each of these three years.

Prepare in appropriate form a statement of partnersâ capital for the year ending December 31, 2018.

Determine the allocation of income for 2016. (Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar amounts.)

Income Allocationâ2016
	Gray	Stone	Lawson	Totals
Salary allowance				$0
Interest				0
Bonus				0
Remainder to allocate				0
Income allocation	$0	$0	$0	$0

Determine the allocation of income for 2017. (Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar amounts.)

Income Allocationâ2017
	Gray	Stone	Lawson	Monet	Totals
Salary allowance					$0
Interest					0
Bonus					0
Remainder to allocate					0
Income allocation	$0	$0	$0	$0	$0

Determine the allocation of income for 2018. (Do not round intermediate calculations. Round your answers to the nearest dollar amounts.)

Income Allocationâ2018
	Gray	Stone	Lawson	Monet	Totals
Salary allowance					$0
Interest					0
Bonus					0
Remaining net income					0
Income allocation	$0	$0	$0	$0	$0

Prepare in appropriate form a statement of partnersâ capital for the year ending December 31, 2018. (Amounts to be deducted should be indicated with minus sign. Do not round intermediate calculations. Round your answers to nearest dollar amounts.)

GRAY, STONE, LAWSON, and MONET
Statement of Partners' Capital
For the Year Ending December 31, 2018
	Gray	Stone	Lawson	Monet	Totals
Beginning balances					$0
Profit allocation					0
Drawings					0
Ending Balances	$0	$0	$0	$0	$0

tealelk83

Tatiana partnership

The Tatiana Partnership is a calendar year, cash basis limitedpartnership which was formed on 1 January 2014. The partnership isin the business of training attack dogs and cats (business code541990). The address for the partnership and both partners is 300Montgomery Street, Suite 1050, San Francisco, CA 94104. Allbusiness is carried on in the San Francisco Bay Area, and thepartnership has no foreign activities of any kind. The partnershipreturn is filed in Ogden, Utah. The partnershipâs federal ID numberis 94-0070070.

The partnership agreement follows the provisions of IRC section704 and provides that gains, losses, and depreciation will beallocated in such a manner so as to account for the differencesbetween agreed market values and the tax basis of assetscontributed to the partnership. For example, should the agreedvalue exceed the tax basis of a contributed asset, any gain due tothe difference shall be allocated to the contributing partner uponsale of the asset. Any remaining gain shall be allocated in theâregularâ ratio in which partners share income and losses.Furthermore, depreciation expense on contributed assets is to beallocated to the noncontributing partner as if the assetâs FAIRMARKET VALUE were EQUAL to its tax basis; any remainingdepreciation is to be allocated to the contributing partner.

Outside of the special IRC Section 704 allocations discussed inthe preceding paragraph, all other items are allocated in theânormalâ profit and loss ratios for the partnership.

Data on the partners, the assets contributed by them, and theprofit and loss ratios agreed upon are as follows:

Tyr Slesnick (SSN; 007-06-1991), the general partner

Arekay Mitchell (SSN: 006-01-1985), the limited partner.

Tyr â 60% profit and loss ratio. Tyr contributed a parcel ofland (acquired on 1/1/1995 as investment property) and its relatedmortgage. The land originally cost $200,000 and had a fair marketvalue of $300,000 as of the date it was contributed to thepartnership. There was a $180,000 balance on the qualifiednonrecourse mortgage assumed by the partnership. The land is knownas âWhitaker Acresâ. The capital contribution of the land and itsrelated mortgage was made on the date the partnership was formed.The land was used by the Tatiana Partnership as a location to trainthe dogs.

Arekay â 40% profit and loss ratio. Arekay contributed a dogtraining machine valued at $80,000. The dog training machine wasacquired on 1/1/2009 at a cost of $120,000. The machine originallyhad a ten year life (5 years left@ 1/1/2014) and is depreciated onthe straight-line method using a 10 year life at the rate of$12,000 of depreciation per year. Accumulated depreciation of$60,000 ($120,000 cost less $60,000 accumulated depreciationthrough 12/31/2013) as of the date it was contributed to thepartnership.

The partnership keeps its books on the tax basis method withappropriate supporting schedules maintained to keep track of fairmarket value where required. Each partnerâs ownership of capital isper the books.

A. You need to make a journal entry to record Tyrâs capitalcontribution of the land subject ot the mortgage as of1/1/2014.

B. You need to make a journal entry to record Arekayâs capitalcontribution of the dog training machine as of 1/1/2014.

C. On 12/31/2014 (the last day of the year), the partnershippurchases a new piece of land (Darien Acres) for $4,500,000. The$4,500,000 purchase was 100% financed via a $1,000,000 RECORSE LOANfrom Union Bank and a $3,500,000 QUALIFIED NONRECOURSE FINANCINGfrom Wells Fargo bank. The recourse loan plus one yearâs interestat 10% is due in full on 12/31/2014, and no interest is payableuntil maturity. The qualified nonrecourse loan requires quarterlyinterest payments (at an 8% annual rate) with the first quarterlyinterest payment of $70,000 not being due until 3/31/2015 (i.e.,next year). This land will be used as a larger site on which totrain the dogs and cats â i.e., itâll be used as business land.

D. You need to record the depreciation expense on the dogtraining machine. Please note that the machine is deprecated usinga 10 year life for both regular and âalternative minimum taxâ.Depreciation. As noted in the facts, the machineâs tax depreciationis $12,000 ($120,000 original cost divided by 10 years). If themachineâs depreciation had been based on itâs $80,000 FMV, thedepreciation based on FMV would have been $16,000 ($80,000 FMVdivided by the 5 year remaining life). Youâre going to have tofigure out what to do and how to allocate the depreciation betweenthe partners.

E. The business purchased $920,000 of additional trainingequipment. This equipment was purchased on the day the partnershipwas formed, and it has been fully paid for as of the end of theyear. The partnership desires to claim the MAXIMUM depreciationallowed under the tax law, so youâll need to compute this andprepare a journal entry recording the depreciation. The propertywas purchased on 1/2/2013.

F. The property contributed by Tyr was known as âWhitakerAcresâ. This property was SOLD on July 4^th of thecurrent year for $600,000 ($420,000 of cash is shown in a separateaccount, but no entry has been made to record the sale, so youâllneed to make the journal entry necessary to record the sale anddecide how to allocate the gain between the two partners.

REQUIRED:

1. Prepare journal entries to record the events listed in âAâthrough âFâ above. Label the entries âAâ through âFâ>

2. Post the journal entries to the cash activity and prepare aâworking trial balanceâ.

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ACCT351 Study Guide - Midterm Guide: Delaware General Corporation Law, Legal Personality, Sole Proprietorship

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