Chapter Review
12-7dDiscussion Questions
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What are the main advantages of (a) proprietorships, (b) partnerships, and (c) limited liability companies?
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What are the disadvantages of a partnership over a limited liability company form of organization for a profit-making business?
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Emilio Alvarez and Graciela Zavala joined together to form a partnership. Is it possible for them to lose a greater amount than the amount of their investment in the partnership? Explain.
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What are the major features of a partnership agreement for a partnership or an operating agreement for a limited liability company?
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Josiah Barlow, Patty DuMont, and Owen Maholic are contemplating the formation of a partnership. According to the partnership agreement, Barlow is to invest $60,000 and devote one-half time, DuMont is to invest $40,000 and devote three-fourths time, and Maholic is to make no investment and devote full time. Would Maholic be correct in assuming that since he is not contributing any assets to the firm, he is risking nothing? Explain.
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During the current year, Marsha Engles withdrew $4,000 monthly from the partnership of Engles and Cox Water Management Consultants. Is it possible that her share of partnership net income for the current year might be more or less than $48,000? Explain.
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What accounts are debited and credited to record a partner’s cash withdrawal in lieu of salary?
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The articles of partnership provide for a salary allowance of $6,000 per month to partner C. If C withdrew only $4,000 per month, would this affect the division of the partnership net income? Explain.
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At the end of the fiscal year, what accounts are debited and credited to record the division of net income among partners?
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Explain the difference between the admission of a new partner to a partnership (a) by purchase of an interest from another partner and (b) by contribution of assets to the partnership.
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Why is it important to state all partnership assets in terms of current prices at the time of the admission of a new partner?
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Why might a partnership pay a bonus to a newly admitted partner?