Unit 3 · 9 lessons
Partnerships and Corporations
Forming, sharing income in, changing and closing a partnership, then issuing shares, paying dividends and reporting for a corporation.
- 74 practice questions
- 65 flashcards
- 1 interactive lesson
Lessons
- 1Partnerships: Types and FormationA partnership is two or more people carrying on a business together for profit; it is recorded with a separate capital and drawings account for each partner, and every non-cash asset a partner contributes is recorded at its fair value on the day it is invested.8 questions
- 2Dividing Partnership IncomePartnership net income or loss is divided among the partners exactly as the partnership agreement says, usually by giving salary allowances first, then interest on capital, then sharing whatever is left (positive or negative) in the income ratio, and the result is closed from Income Summary to each partner's capital.Interactive8 questions
- 3Admitting and Withdrawing PartnersA new partner can buy an existing partner's interest (a personal deal that only moves capital between accounts) or invest new assets in the firm (which increases total capital); when the price differs from the capital credit, the difference is a bonus shared by the old partners in their income ratio, and the same bonus idea applies when a partner withdraws.8 questions
- 4Liquidation and the Statement of Partners' EquityTo liquidate a partnership, sell the non-cash assets, share the gain or loss in the income ratio, pay the creditors, and distribute the remaining cash according to the capital balances; each year the statement of partners' equity explains how every partner's capital changed, and the balance sheet lists each partner's capital.8 questions
- 5Corporations and Classes of SharesA corporation is a separate legal person owned by shareholders whose risk is limited to what they invested, and it raises capital by issuing common and preferred shares whose rights are set out in its articles.9 questions
- 6Issuing, Subscribing and Repurchasing SharesNo-par shares are recorded at the full amount received (or the fair value of non-cash assets), subscriptions use a receivable and a Shares Subscribed account until paid in full, and repurchased shares come off the share account at their average issue price.8 questions
- 7Cash Dividends and Preferred ShareholdersA cash dividend becomes a liability on the declaration date, needs no entry on the record date, and is paid on the payment date; preferred shareholders are paid first, including any arrears on cumulative shares.8 questions
- 8Stock Dividends, Stock Splits and Shareholders' EquityA stock dividend moves an amount from retained earnings to share capital and a stock split only changes the number of shares, so neither changes total equity, while a cash dividend reduces both assets and equity.8 questions
- 9Financial Statements for a CorporationA corporation's income statement includes income tax expense, its statement of retained earnings links net income and dividends to closing retained earnings, and its balance sheet reports share capital by class, contributed surplus and retained earnings.9 questions