Answer the following questions regarding a partner's capital account. a. What is a partner's capital account? What methods can be used to determine the capital account and when might these methods be used? A partner's capital account can be thought of as partner's ownership in the entity. A partner's capital account reflects the partner's in the partnership, and it is determined using one of several possible methods defined by the partnership. The partner's ending capital account balance is the same amount as the partner's basis. A tax basis capital account might be used if the partnership otherwise required to prepare financial reporting information. b. Select either "Yes" or "No" to indicate which of the following are included in a partner's ending capital account balance and which are not. 1. The capital account reflects contributions and distributions of cash or other property to or from the partner. 2. The capital account accumulates the partner's share of increases and decreases from operations. 3. The capital account may be adjusted for the partner's share of partnership liabilities. 4. The capital account excludes income or expense items that are otherwise tax-exempt or nondeductible.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Answer the following questions regarding a partner's capital account.

a. What is a partner's capital account? What methods can be used to determine the capital account and when might these methods be used?

A partner's capital account can be thought of as partner's ownership in the entity. A partner's capital account reflects the partner's in the partnership, and it is determined using one of several possible methods defined by the partnership. The partner's ending capital account balance is the same amount as the partner's basis. A tax basis capital account might be used if the partnership otherwise required to prepare financial reporting information.

b. Select either "Yes" or "No" to indicate which of the following are included in a partner's ending capital account balance and which are not.

1.	The capital account reflects contributions and distributions of cash or other property to or from the partner.
2.	The capital account accumulates the partner's share of increases and decreases from operations.
3.	The capital account may be adjusted for the partner's share of partnership liabilities.
4.	The capital account excludes income or expense items that are otherwise tax-exempt or nondeductible.

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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