Chapter 15, Problem 15.1C

To determine

Partnership agreement:It is formal written agreement between partners. Partners are strongly advised to have a formal written agreement to avoid potential problems that could arise during the operation of the business. Each partner should sign the partnership agreement to indicate acceptance of its terms. A partnership agreement should include following items.

1. Name of partnership and partners.
2. Type of business to be conducted by the partnership.
3. Initial capital contribution of each partner and method of future capital contributions.
4. Manner of distribution of profit or loss, including salaries, interest on capital bonuses and limit of withdrawals.
5. Procedure for changes in partnership such as admission on new partners.
6. Other aspects such as management and accounting methods to be used.

why a partnership agreement may need additional features in addition to income and loss sharing ratio.

To determine

Partnership agreement:It is formal written agreement between partners. Partners are strongly advised to have a formal written agreement to avoid potential problems that could arise during the operation of the business. Each partner should sign the partnership agreement to indicate acceptance of its terms. A partnership agreement should include following items.

1. Name of partnership and partners.
2. Type of business to be conducted by the partnership.
3. Initial capital contribution of each partner and method of future capital contributions.
4. Manner of distribution of profit or loss, including salaries, interest on capital bonuses and limit of withdrawals.
5. Procedure for changes in partnership such as admission on new partners.
6. Other aspects such as management and accounting methods to be used.

To discuss:The arguments against recording salary and bonus to partners’ as expenses included in computation of net income.

To determine

It is formal written agreement between partners. Partners are strongly advised to have a formal written agreement to avoid potential problems that could arise during the operation of the business. Each partner should sign the partnership agreement to indicate acceptance of its terms. A partnership agreement should include following items.

1. Name of partnership and partners.
2. Type of business to be conducted by the partnership.
3. Initial capital contribution of each partner and method of future capital contributions.
4. Manner of distribution of profit or loss, including salaries, interest on capital bonuses and limit of withdrawals.
5. Procedure for changes in partnership such as admission on new partners.
6. Other aspects such as management and accounting methods to be used.

To discuss: The arguments against recording salary and bonus to partners’ as partnership expenses.

To determine

It is formal written agreement between partners. Partners are strongly advised to have a formal written agreement to avoid potential problems that could arise during the operation of the business. Each partner should sign the partnership agreement to indicate acceptance of its terms. A partnership agreement should include following items.

1. Name of partnership and partners.
2. Type of business to be conducted by the partnership.
3. Initial capital contribution of each partner and method of future capital contributions.
4. Manner of distribution of profit or loss, including salaries, interest on capital bonuses and limit of withdrawals.
5. Procedure for changes in partnership such as admission on new partners.
6. Other aspects such as management and accounting methods to be used.

To discuss: the list of additional provisions that should be included in partnership agreement for the interest amount calculation.