Solutions for Advanced Financial
Accounting Exam 2 (1st edition by
Nathalie Johnstone)
Legal Characteristics of Partnerships - ANS1) Defined as "an association of two or more
persons to carry on business as co-owners for profit."
2) Are common especially in the legal, medical, and accounting professions. Professionals in
service professions often choose the partnership as the legal form for doing business.
3) Have never grown to the huge size of large corporations primarily because of the unlimited
personal liability assumed by each partner. *KEY DISADVANTAGE
Legal Characteristics of Partnerships continued.. - ANS4) The most distinctive aspect of
partnership accounting centers on the maintenance of separate equity (capital) accounts for
each partner.
5) Typically the basis for changes to each partners capital account will be found in a written
articles of partnership agreement, or if no written articles exist, the Uniform Partnership Act.
The Articles of Partnership - ANSDescribe how initial investments, income allocation,
withdrawals of profits by partners, admission of new partners, and withdrawal of partners will
affect partners' capital accounts.
Subchapter S Corporations - ANS1) Have nearly all the legal characteristics of corporations
including limited liability of owners.
2) Have profits that pass through to owners similar to partnerships.
3) Ownership is by law limited to 100 stockholders.
4) The stockholders must be individuals, estates, trusts and certain tax-exempt entities.
Limited Partnerships (LPs) - ANSHas at least one "limited" partner who may not participate in
management in any way but whose personal losses for partnership debt are limited to the
amount invested. The limited partnership must also have at least one general partner with
unlimited liability.
Limited Liability Companies (LLCs) - ANS1) All owners are liable only for their own acts and
omissions, and the acts and omissions of those under their direct supervision.
2) Owners of these entities do not have unlimited personal liability for the negligent or fraudulent
acts of other partners not under their control.
Partnership Legal Form Advantages - ANS1) Flexibility in defining relationships
2) Allows a firm to broaden the breadth and depth of knowledge residing within the firm
Accounting Exam 2 (1st edition by
Nathalie Johnstone)
Legal Characteristics of Partnerships - ANS1) Defined as "an association of two or more
persons to carry on business as co-owners for profit."
2) Are common especially in the legal, medical, and accounting professions. Professionals in
service professions often choose the partnership as the legal form for doing business.
3) Have never grown to the huge size of large corporations primarily because of the unlimited
personal liability assumed by each partner. *KEY DISADVANTAGE
Legal Characteristics of Partnerships continued.. - ANS4) The most distinctive aspect of
partnership accounting centers on the maintenance of separate equity (capital) accounts for
each partner.
5) Typically the basis for changes to each partners capital account will be found in a written
articles of partnership agreement, or if no written articles exist, the Uniform Partnership Act.
The Articles of Partnership - ANSDescribe how initial investments, income allocation,
withdrawals of profits by partners, admission of new partners, and withdrawal of partners will
affect partners' capital accounts.
Subchapter S Corporations - ANS1) Have nearly all the legal characteristics of corporations
including limited liability of owners.
2) Have profits that pass through to owners similar to partnerships.
3) Ownership is by law limited to 100 stockholders.
4) The stockholders must be individuals, estates, trusts and certain tax-exempt entities.
Limited Partnerships (LPs) - ANSHas at least one "limited" partner who may not participate in
management in any way but whose personal losses for partnership debt are limited to the
amount invested. The limited partnership must also have at least one general partner with
unlimited liability.
Limited Liability Companies (LLCs) - ANS1) All owners are liable only for their own acts and
omissions, and the acts and omissions of those under their direct supervision.
2) Owners of these entities do not have unlimited personal liability for the negligent or fraudulent
acts of other partners not under their control.
Partnership Legal Form Advantages - ANS1) Flexibility in defining relationships
2) Allows a firm to broaden the breadth and depth of knowledge residing within the firm
