Moustapha and Ava want to form a business to buy and sell small appliances. They will both actively work in the business. They are concerned about personal liability. They estimate the company will not be profitable for five years and they want to be able to deduct any losses. Which form of entity should they use to accomplish their objectives? O limited partnership O any of the listed entities would accomplish their objectives O limited liability company O general partnership
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- Which of the following may not be treated as a partnership for tax purposes? Arnold and Willis operate a restaurant. Thelma and Louise establish an LLP to operate an accounting practice. Lucy and Desi purchase real estate together as a business. Jennifer and Ben form a corporation to purchase and operate a hardware store. All of the above are partnerships.Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2022, O’Donnell invests a building worth $54,000 and equipment valued at $20,000 as well as $16,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement: O’Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year. O’Donnell will also have added to his capital account 10 percent of partnership income each year (without regard for the preceding interest figure) or $5,000, whichever is larger. All remaining income is credited to Reese. Neither partner is allowed to withdraw funds from the partnership during 2022.…A & B approach C about forming a general partnership. A & B will each contribute $10,000 cash as start-up funds. C is to contribute no cash but instead work full-time in the business. A & B will work only part-time in the business. A, B, & C will share profits equally. C believes this is a great opportunity for him as he has no investment to risk by going into business with A & C. Is he correct?
- Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2019, O’Donnell invests a building worth $74,000 and equipment valued at $44,000 as well as $32,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement: O’Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year.O’Donnell will also have added to his capital account 10 percent of partnership income each year (without regard for the preceding interest figure) or $6,000, whichever is larger. All remaining income is credited to Reese.Neither partner is allowed to withdraw funds from the partnership during 2019.…Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2019, O’Donnell invests a building worth $126,000 and equipment valued at $132,000 as well as $52,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement: O’Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year. O’Donnell will also have added to his capital account 20 percent of partnership income each year (without regard for the preceding interest figure) or $7,000, whichever is larger. All remaining income is credited to Reese. Neither partner is allowed to withdraw funds from the partnership during…2. D, E and F entered into a partnership to operate a restaurant business. When the restaurant had gone past break-even stage and started to garner considerable profits, F died. D and E continued the business without dissolving the partnership. They in fact opened a branch of the restaurant, incurring obligations in the process. Creditors started demanding for the payment of their obligations. Who are liable for the settlement of the partnership’s obligations?
- Steve Reese is a well-known Interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O'Donnell, a local merchant, to contribute the capital to form a partnership On January 1, 2022, O'Donnell Invests a building worth $102,000 and equipment valued at $40,000 as well as $38,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner In the beginning capital balances. To entice O'Donnell to join this partnership. Reese draws up the following profit and loss agreement: ⚫ O'Donnell will be credited annually with interest equal to 20 percent of the beginning capital balance for the year. ⚫ O'Donnell will also have added to his capital account 10 percent of partnership Income each year (without regard for the preceding Interest figure) cr $4,000, whichever is larger. All remaining Income is credited to Reese. Neither partner is allowed to withdraw funds from the partnership during 2022.…Rondo and his business associate, Larry, are considering forming a business entity called R&L, but they are unsure about whether to form it as a C corporation, an S corporation, or an LLC taxed as a partnership. Rondo and Larry would each invest $150,000 in the business. Thus, each owner would take an initial basis in his ownership interest of $150,000 no matter which entity type is formed. Shortly after the formation of the entity, the business borrowed $50,000 from the bank. If applicable, this debt will be shared equally between the two owners. a. After taking the loan into account, what is Rondo's tax basis in his R&L stock if R&L is formed as a C corporation? b. After taking the loan into account, what is Rondo's tax basis in his R&L stock if R&L is formed as an S corporation? c. After taking the loan into account, what is Rondo's tax basis in his R&L ownership interest if R&L is formed as an LLC and taxed as a partnership?Tom and Missy form TM Partnership, Ltd. (an LLLP), to own and operate certain real estate. Tom contributed land, and Missy contributed cash to be used for setting up the entity and creating a plan for developing the property. Once a development plan was in place, the partnership sold interests in the partnership to investors to raise funds for constructing a shopping center. The partnership incurred expenses of $30,000 for forming the entity and $60,000 for starting the business (e.g., setting up the accounting systems, locating tenants, and negotiating leases). It also paid $5,000 in transfer taxes for changing the ownership of the property to the partnership’s name. The brokerage firm that sold the interests to the limited partners charged a 6% commission, which totaled $600,000. The calendar year partnership started business in November this year. Describe how all these initial expenses are treated by the partnership.
- An existing partnership (Jim and Jerry) wants to expand their services to include a rare and specialized service. This service will generate more revenue than other services since it is so specialized and they will be the only one to offer the service in their state. They find an individual (Bob) who has this specialized skill and asks him to become a partner in their partnership. Bob agrees but is requesting a $60,000 interest in the partnership for a $30,000 cash investment. Is this possible? If so how would the accountant go about accounting for the $30,000 difference between the interest Bob will receive and the cash he is investing?On June 30, 2020, Amal, the sole proprietor of the Amal Company, expands the company and establish a partnership with Umong and Abongga. The partners plan to share profits and losses as follows: Amal, 50%; Umong, 25%; and Abongga, 25%. They also agree that the beginning capital balances of the partnership will reflect this same relationship. Amal asked Umong to join the partnership because his many business contacts are expected to be valuable during expansion. Umong is also contributing P28,000 cash. Abongga is contributing P11,000 cash and marketable securities costing P42,000 to Abongga but are currently worth P57,500. Amal’s investment in the partnership is the Amal Company. He plans to pay off the notes with personal assets. The other partners have agreed that partnership will assume the accounts payable. The Statement of Financial Position for the Jamal Company follows: * The partners agree that the inventory is worth 85,000, and the equipment is worth half its original cost,…Joy, a sole proprietor, and Baby, with no existing business, have decided to form a partnership. Joy will invest the assets of her existing business presented below at their agreed valuation, and also transfers her liabilities to the new partnership. Ledger Balances Agreed Valuation P 450,000 180,000 15,000 300,000 180,000 30,000 105,000 90,000 P 450,000 180,000 10,000 270,000 125,000 Cash Accounts Receivable Allowance for Uncollectible Accounts Merchandise Inventory Equipment Accumulated Depreciation Accounts Payable Notes Payable 105,000 90,000 Baby agreed to invest cash for a one-third interest in the firm, REQUIRED: 1. Prepare the entries to adjust and close the balances of accounts in the books of Joy. Computations should be prepared in good form. 2. Prepare the entries to record the investments of Joy and Baby in the partnership's new set of books.