1. Dissolution
1.1. Admission of a new partner
1.1.1. Bonus Method
1.1.1.1. Must invest directly into partnership
1.1.1.2. BV of assets and liabilities retained
1.1.1.3. Assets invested in excess of BV of ownership acquired = the bonus
1.1.1.4. Bonus is allocated to existing partners based on P/L %
1.1.2. Goodwill Method
1.1.2.1. Invested into partnership
1.1.2.1.1. Implied FV < BV
1.1.2.1.2. Implied FV > BV
1.1.2.2. Paid directly to existing partner
1.1.2.2.1. Recognize goodwill and increase existing partners' capital accounts
1.1.2.2.2. Transfer of equity: debit existing partner's capital account and credit new partner's capital account
1.1.2.2.3. Assets contributed are not added to company's books because they are paid directly to an existing partner
1.1.2.3. Assets and liabilities always revalued to FMV first
1.2. Withdrawal of a partner
1.2.1. Bonus Method
1.2.1.1. Excess of amount paid over partner's existing capital is allocated to remaining partners based on P/L %
1.2.2. Goodwill Method
1.2.2.1. Adjust books to FMV and allocate proportion of goodwill to each partner's account based on P/L %
1.2.2.2. Debit leaving partner's adjusted capital balance and credit cash paid out
2. Income allocation
2.1. Profit/Loss allocation percentages are delineated in the articles of partnership; not usually based on ownership %/capital balances
2.2. Recorded net income Less: specific items allocated to partners = income allocated based on P/L ratios
2.3. Specific allocated items: Interest on capital balances Salaries as stated in contract Bonuses
3. General Information
3.1. advantages
3.1.1. simple, easy to create
3.1.2. flexibility in structure
3.1.3. taxes flow through (no double tax)
3.1.4. share expenses and expertise
3.2. disadvantages
3.2.1. unlimited liability
3.2.2. mutual agency: any partner can incur company liability
3.2.3. missed tax benefits
3.3. forms
3.3.1. LLP
3.3.2. LLC
3.3.3. LP
3.3.4. Subchapter S Corp
4. Formation
4.1. Intangibles NOT recorded as an asset: Bonus Method
4.1.1. Tangible assets are added at FV
4.1.2. Assignment of capital balances is based on partnership agreement, not asset contribution
4.1.3. Intangibles NOT recorded as an asset
4.2. Intangibles ARE recorded as an asset: Goodwill Method
4.2.1. Tangible assets are added at FV
4.2.2. Calculate capital balance based on % of ownership first and then back into goodwill
4.2.3. Intangibles are calculated and recorded