Page 135 - Business Principles and Management

Unit 2
facts & the amount of his liabilities ($7,200) from the total value of his assets ($160,800),
figures
“Partners” can be classified in partnership agreement, shown in Figure 5-4, is then written and signed by York,
a variety of ways. A silent part- Burton, and Chan.
ner may be known to the pub-
lic as a partner but takes no sheet) must be prepared. This statement shows the total assets, liabilities, and capi-
active part in management.
A secret partner is not known shown in Figure 5-5. Each asset category on the combined balance sheet (merchan-
to the public, yet participates
in management. A dormant
partner is neither known to
the public as a partner nor
active in management.
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The net worth of Burton’s business is $153,600. In other words, after deducting
his business is worth $153,600. According to Jennifer York’s balance sheet in
Figure 5-2, her business is worth $204,000. In order to have an equal investment
in the partnership, Burton must invest an additional $50,400 in cash.
They find Lu Chan, a person with accounting experience, who has $144,000
and is able to borrow the remaining $60,000 to become an equal partner. The
Once the partnership is formed, a statement of financial position (balance
tal of the owners at the start of the business. The partnership’s balance sheet is
FIGURE 5-4 A clearly written and understood partnership agreement
can prevent problems later.
Partnership Agreement
This contract, made and entered into on the first day of June, 20-- by and between
Jennifer L. York, of Buffalo, New York, party of the first part, Robert R. Burton, of
Buffalo, New York, party of the second part, Lu Chan of Niagara Falls, New York, party
of the third part:
Witnesseth: That the said parties have this day formed a partnership for the purpose
of engaging in and conducting a retail grocery-fruit-meat market and bakery under the
following stipulations, which are made a part of the contract:
First: The said partnership is to continue for a term of ten years from date hereof.
Second: The business shall be conducted under the firm name of Y, B, & C Fine
Foods, at 4467 Goodson Street, Buffalo, New York.
Third: The investments are as follows: Jennifer L. York: Cash, $17,760; Merchandise,
$31,680; Equipment, $24,960; Land and Buildings, $144,000; Total Assets, $218,400; less
Accounts Payable, $14,400, equals Net Investment, $204,000. Robert R. Burton: Cash,
$10,560; Merchandise, $3,600; Equipment, $26,640; Land and Buildings, $120,000; Total
Assets, $160,800, less Accounts Payable, $7,200, equals Net Investment, $153,000. Lu
Chan: Cash, $204,000.
Fourth: All profits or losses arising from said business are to be shared equally.
Fifth: Each partner is to devote his or her entire time and attention to the business
and to engage in no other business enterprise without the written consent of the
others.
Sixth: Each partner is to have a salary of $5,000 a month, the same to be withdrawn
at such time as he or she may elect. No partner is to withdraw from the business an
amount in excess of his or her salary without the written consent of the others.
Seventh: The duties of each partner are defined as follows: Jennifer L. York is to
supervise the grocery-fruit-vegetable departments. Robert R. Burton is to supervise the
bakery and meat departments. Lu Chan is to manage finances, inventory, and records.
Eighth: No partner is to become surety for anyone without the written consent of
the others.
Ninth: In case of the death, incapacity, or withdrawal of one partner, the business is
to be conducted for the remainder of the fiscal year by the surviving partners, the
profits for the year allocated to the withdrawing partner to be determined by the ratio
of the time he or she was a partner during the year to the whole year.
Tenth: In case of dissolution the assets are to be divided in the ratio of the capital
invested at the time of dissolution.
In Witness Whereof, the parties aforesaid have hereunto set their hands and affixed
their seals on the day and year above written.
In the presence of: (Seal)
(Seal)
(Seal)