Deck 17: Partnership Liquidation

Question 1

Use the following information to answer the question(s)below.
On June 30,2011,the Able,Baker,and Charlie partnership had the following fiscal year-end balance sheet:
The percentages shown are the residual profit and loss sharing ratios.The partners dissolved the partnership on July 1,2011,and began the liquidation process.During July the following events occurred:
* Receivables of $6,000 were collected.
* All inventory was sold for $8,000.
* All available cash was distributed on July 31,except for
$4,000 that was set aside for contingent expenses.
How much cash would Baker receive from the cash that is available for distribution on July 31? (Assume a safe payments schedule is used. )

A)$ 0
B)$ 800
C)$2,400
D)$4,000

Answer 1

D
Explanation: D)
Able Baker Charlie Total
Equities,Jun 30 $ 16,000 $ 20,000 $ 22,000 $ 58,000
Inventory loss (4,000)(4,000)(12,000)(20,000)
Contingency fund (800)(800)(2,400)(4,000)
Subtotals 11,200 15,200 7,600 34,000
Possible losses on
remaining assets (6,000)(6,000)(18,000)(30,000)
Subtotals $ 5,200 $ 9,200 $(10,400)$ 4,000
Eliminate Charlie's
Deficit (5,200)(5,200)10,400
Cash distribution $ 0 $ 4,000 $ 0 $ 4,000

Question 2

Which of the following procedures is acceptable when accounting for a deficit balance in a partner's capital account during partnership liquidation,if the partner with a negative capital balance is personally insolvent?

A)The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to zero.
B)The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to all the partners.
C)The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to those partners having positive balances.
D)The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to the same level of the other partners' capital accounts.

Answer 2

C

Question 3

Use the following information to answer the question(s)below.
On June 30,2011,the Able,Baker,and Charlie partnership had the following fiscal year-end balance sheet:
The percentages shown are the residual profit and loss sharing ratios.The partners dissolved the partnership on July 1,2011,and began the liquidation process.During July the following events occurred:
* Receivables of $6,000 were collected.
* All inventory was sold for $8,000.
* All available cash was distributed on July 31,except for
$4,000 that was set aside for contingent expenses.
The cash available for distribution to the partners on July 31,2011 is

A)$ 4,000.
B)$ 8,000.
C)$14,000.
D)$22,000.

Answer 3

A
Explanation: A)($8,000 beginning balance + $6,000 cash collected + $8,000 for inventory sold - $14,000 of accounts payable - $4,000 for expenses)

Question 4

Use the following information to answer the question(s)below.
On June 30,2011,the Able,Baker,and Charlie partnership had the following fiscal year-end balance sheet:
The percentages shown are the residual profit and loss sharing ratios.The partners dissolved the partnership on July 1,2011,and began the liquidation process.During July the following events occurred:
* Receivables of $6,000 were collected.
* All inventory was sold for $8,000.
* All available cash was distributed on July 31,except for
$4,000 that was set aside for contingent expenses.
How much cash would Able receive from the cash that is available for distribution on July 31? (Assume a safe payments schedule is used. )

A)$ 0
B)$ 800
C)$2,400
D)$4,000

Question 5

A simple partnership liquidation requires

A)periodic payments to creditors and partners determined by a safe payments schedule.
B)partnership assets to be converted into cash with full payment made to all outside creditors before remaining cash is distributed to partners.
C)only creditors to be paid in an orderly manner.
D)periodic payments to partners as cash becomes available.

Question 6

What is the proper disposition of a partnership loan that was made from a partner who has a debit balance in the capital account?

A)The loan is ignored in liquidation.
B)The loan is offset against the debit balance in the capital account.
C)The loan is charged off to the capital accounts of all the partners in their profit and loss sharing ratios.
D)The loan is held for payment after all other capital accounts are covered.

Question 7

The year-end balance sheet and residual profit and loss sharing percentages for the Gary,Harold,and Ivan partnership on December 31,2011,are as follows: The partners agree to liquidate the business and distribute cash when it becomes available.A cash distribution plan is developed with vulnerability rankings for the Gary,Harold and Ivan partnership.After outside creditors are paid,the cash available will initially go to

A)Gary in the amount of $20,000.
B)Harold in the amount of $50,000.
C)Harold in the amount of $70,000.
D)Ivan in the amount of $40,000.

Question 8

Creditors of the partnership may seek the personal assets of the partners to satisfy amounts owed.When this happens

A)creditors may only file against partnership assets.
B)creditors must file against all partners and recover their claims based on the individual partner's profit and loss distribution percentage.
C)creditors must file against all partners and recover their claims based on the individual partner's percentage ownership.
D)creditors may file against an individual partner to recover their claims,or against any combination of partners.

Question 9

In a schedule of assumed loss absorptions

A)the partner with lowest loss absorption is eliminated last.
B)it is necessary to have a cash distribution plan first.
C)the least vulnerable partner is eliminated first.
D)the most vulnerable partner is eliminated first.

Question 10

If all partners are included in the first installment of an installment liquidation,then in future installments

A)cash will be distributed according to the residual profit and loss sharing ratios.
B)cash should not be distributed until all non-cash assets are converted into cash.
C)vulnerability rankings for each partner should be prepared.
D)a cash distribution plan must be prepared so that partners will know when they will be included in cash distributions.

Question 11

Gains and losses incurred at liquidation are distributed to the partners using the residual profit and loss sharing ratios because

A)using ownership percentages would permit solvent partners to not share profits with insolvent partners.
B)the residual profit and loss ratios represent the ownership percentages.
C)these amounts represent profits and losses from prior periods that would have been shared using the residual profit and loss ratios.
D)using the established profit and loss sharing ratios is not permitted.

Question 12

If conditions produce a debit balance in a partner's capital account when liquidation losses are allocated,then

A)the partner receives further allocations of liquidation losses,but not gains.
B)the partner receives further allocations of liquidation gains,but not losses.
C)the partner is no longer obligated to partnership creditors.
D)the partner has an obligation of personal net assets to the other partners.

Question 13

In partnership liquidation,how are partner salary allocations treated?

A)Salary allocations take precedence over creditor payments.
B)Salary allocations take precedence over amounts due to partners with respect to their capital interests,but not profits.
C)Salary allocations take precedence over amounts due to partners with respect to their capital profits,but not capital interests.
D)Salary allocations are disregarded.

Question 14

Use the following information to answer the question(s)below.
Lola,Melvin,and Nettie are in the process of liquidating their partnership.Since it may take several months to convert the other assets into cash,the partners agree to distribute all available cash immediately,except for $12,000 that is set aside for contingent expenses.The balance sheet and residual profit and loss sharing percentages are as follows:

Using a safe payment schedule,how much cash should Lola receive in the first distribution?

A)$ 81,000
B)$ 98,000
C)$168,600
D)$202,500

Question 15

Que,Rae,and Sye are in the process of liquidating their partnership.Sye has agreed to accept the inventory,which has a fair value of $60,000,as part of her settlement.A balance sheet and the residual profit and loss sharing percentages are as follows: If the partners then distribute the available cash using a safe payments schedule,Sye will receive

A)$ 41,000 cash.
B)$ 51,000 cash.
C)$107,000 cash.
D)$175,000 cash.

Question 16

Use the following information to answer the question(s)below.
Lola,Melvin,and Nettie are in the process of liquidating their partnership.Since it may take several months to convert the other assets into cash,the partners agree to distribute all available cash immediately,except for $12,000 that is set aside for contingent expenses.The balance sheet and residual profit and loss sharing percentages are as follows:

Using a safe payments schedule,how much cash should Melvin receive in the first distribution?

A)$ 81,000
B)$165,000
C)$168,600
D)$202,500

Question 17

Which partner is considered the most vulnerable as a result of a computation of vulnerability rankings?

A)The partner who has the lowest loss absorption potential
B)The partner who has the highest loss absorption potential
C)The partner with the highest capital account balance
D)The partner with the lowest capital account balance

Question 18

In partnership liquidations,what are safe payments?

A)The amounts of distributions that can be made to the partners,after all creditors have been paid in full.
B)The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership.
C)The amounts of distributions that can be made to the partners,after all non-cash assets have been adjusted to fair market value.
D)The amounts of distributions that can be made to the partners during the liquidation based on the partner's contributed capital return.

Question 19

Use the following information to answer the question(s)below.
On June 30,2011,the Able,Baker,and Charlie partnership had the following fiscal year-end balance sheet:
The percentages shown are the residual profit and loss sharing ratios.The partners dissolved the partnership on July 1,2011,and began the liquidation process.During July the following events occurred:
* Receivables of $6,000 were collected.
* All inventory was sold for $8,000.
* All available cash was distributed on July 31,except for
$4,000 that was set aside for contingent expenses.
The book value of the partnership equity (i.e. ,total equity of the partners)on June 30,2011 is

A)$ 58,000.
B)$ 60,000.
C)$ 84,000.
D)$120,000.

Question 20

Which statement is correct in describing the rank order of payments as specified by the Uniform Partnership Act?

A)Payments to partners are ranked equally,regardless of underlying basis.
B)Payment to partners with excess capital balances may be placed ahead of payments to creditors.
C)Payments to creditors other than partners are ranked ahead of payments to partners.
D)After payments are made to other creditors and partners with loans to the partnership,payment up to the same amount can be made to partners with capital interests.

Question 21

The Catt,Dogg,and Eustus partnership was dissolved by the partners in early 2011.On March 1,the partners prepared the following financial statement before commencement of final liquidation:
Liquidation events in March were as follows:
- Receivables recorded at $120,000 were collected at $110,000;
- Inventory recorded at cost of $80,000 was sold for $60,000;
- Plant assets with a book value of $100,000 were sold for $140,000.
Required:
Determine how the available cash on March 31,2011 should be distributed.

Question 22

Tye,Ula,Val,and Watt are partners who share profits and losses 40%,30%,20%,and 10%,respectively.The partnership will be liquidated gradually over several months beginning January 1,2011.The partnership trial balance at December 31,2010 is as follows:
Required:
Prepare a cash distribution plan for January 1,2011,showing how cash installments will be distributed among the partners as it becomes available.Prepare vulnerability rankings for the partners and a schedule of assumed loss absorption.

Question 23

Eve,Fig,Gus,and Hal are partners who share profits and losses 50%,25%,15%,and 10%,respectively.The partnership will be liquidated gradually over several months beginning January 1,2011.The partnership trial balance at December 31,2010 is as follows:
Required:
Prepare a cash distribution plan for January 1,2011,showing how cash installments will be distributed among the partners as it becomes available.Prepare vulnerability rankings for the partners and a schedule of assumed loss absorption.

Question 24

The balance sheet of the partnership of Jim,Kim,and Larry is shown below as of September 1,2011.The partners had decided to dissolve the partnership earlier in the year,and all assets were converted into cash and all partnership liabilities were paid.The remains of the partnership (with partner residual profit and loss sharing percentages)was as follows:
The value of partners' personal assets and liabilities on July 1,2011 were as follows:
Required:
Prepare the final statement of partnership liquidation.

Question 25

The balance sheet of the Flail,Gail,and Hale partnership on October 1,2011 (the date of partnership dissolution)was as follows:
In October,other assets with a book value of $15,000 were sold for $17,000 in cash.
Required:
Determine how the available cash on October 31,2011 will be distributed.

Question 26

The balance sheet of the Addy,Bess,and Clara partnership on January 1,2011 (the date of partnership dissolution)was as follows:
In January,other assets with a book value of $16,000 were sold for $10,000 in cash.
Required:
Determine how the available cash on January 31,2011 will be distributed.(Use a safe payments schedule. )

Question 27

The Vera,Wade,and Xena partnership was dissolved,and a cash distribution plan was developed,as follows:
Required:
If $1,000,000 of cash was distributed by the partnership,how much was received respectively by the priority creditors,Vera,Wade,and Xena?

Question 28

The partners of the Minion,Nocti and Overly partnership share profits and losses in the ratio of 6:3:1,respectively.The partners have decided to liquidate and terminate the partnership.Prior to liquidation,the partnership balance sheet was as follows:
Required:
Prepare a schedule of liquidation,given that the partnership sold the inventory for $40,000 and the fixed assets for $120,000.

Question 29

A cash distribution plan for the Sammi,Tammy,and Udd partnership was as follows:
Required:
If $850,000 of cash was distributed by the partnership,how much was received respectively by the priority creditors,Sammi,Tammy,and Udd?

Question 30

The partnership of Georgia,Holly,and Izzy was dissolved,and by July 1,2011,all assets had been converted into cash and all partnership liabilities were paid.The partnership balance sheet on July 1,2011 (with partner residual profit and loss sharing percentages)was as follows:
The value of the partners' personal assets and liabilities on July 1,2011 were as follows:
Required:
Prepare the final statement of partnership liquidation.

Question 31

The partnership of May,Novem,and Octo was dissolved.By August 1,2011,all assets had been converted into cash and all partnership liabilities were paid.The partnership balance sheet on August 1,2011 (with partner residual profit and loss sharing percentages)was as follows:
The value of partners' personal assets and liabilities on August 1,2011 were as follows:
Required:
Prepare the final statement of partnership liquidation.

Question 32

The balance sheet of the Maude,Ned,and Oscar partnership on November 1,2011 (before commencement of partnership liquidation)was as follows:
Liquidation events in November were as follows:
- All the inventory was sold for $10,000 above book value;
- Plant assets with a book value of $60,000 were sold for $34,000.
Required:
Determine how the available cash on November 31,2011 should be distributed.

Question 33

The balance sheet of the Ama,Bade,and Calli partnership on May 1,2011 (before commencement of partnership liquidation)was as follows:
Liquidation events in May were as follows:
- The inventory was sold for $12,000 below book value;
- Plant assets with a book value of $100,000 were sold for $120,000.
Required:
Determine how the available cash on May 31,2011 should be distributed.

Question 34

The partners of Nelatyna Manufacturing have decided to dissolve their partnership as of the end of 2010.The partnership is going to liquidate during the first several months of 2011.The four partners of Nell,Ann,Tyler and Nadine,share profits and losses 35%,30%,25%,and 10%,respectively.The partnership trial balance at December 31,2010 is as follows:
Required:
Prepare a cash distribution plan for January 1,2011,showing how cash installments will be distributed among the partners as it becomes available.Prepare vulnerability rankings for the partners and a schedule of assumed loss absorption.

Question 35

The partnership of Dolla,Earl,and Festus was dissolved on January 1,2011.The balance sheet at that date is shown below:
In January,$34,000 of the accounts receivable was collected,and an additional $6,000 was determined to be uncollectible.The remaining receivables are still expected to be collected.
Required:
Determine how the available cash on January 31,2011 will be distributed.(Use a safe payments schedule. )

Question 36

The balance sheet of the Park,Quid,and Reggie partnership on November 1,2011 (before commencement of partnership liquidation)was as follows:
Liquidation events in November were as follows:
- All receivables were settled for $110,000;
- Plant assets with a book value of $90,000 were sold for $52,000.
Required:
Determine how the available cash on November 31,2011 should be distributed.

Question 37

A cash distribution plan for the Jonah,Krispy,and Lemon partnership was as follows:
Required:
If $700,000 of cash was distributed by the partnership,how much was received respectively by the priority creditors,Jonah,Krispy,and Lemon?

Question 38

The Justin,Kyle,and Lulu partnership was dissolved by the partners on May 1,2011.Their balance sheet on that date is shown below:
In May,other assets with a book value of $46,000 were sold for $50,000 in cash.
Required:
Determine how the available cash on May 31,2011 will be distributed.

Question 39

Alf,Bill,Cam,and Dot are partners who share profits and losses 30%,20%,35%,and 15%,respectively.The partnership will be liquidated gradually over several months beginning January 1,2011.The partnership trial balance at December 31,2010 is as follows:
Required:
Prepare a cash distribution plan for January 1,2011,showing how cash installments will be distributed among the partners as it becomes available.Prepare vulnerability rankings for the partners and a schedule of assumed loss absorption.

Question 40

At the end of 2010,the partnership of Piatta,Ragoo,and Sauss was dissolved.By February 1,2011,all assets had been converted into cash and all partnership liabilities were paid.The partnership balance sheet on February 1,2011 (with partner residual profit and loss sharing percentages)was as follows:
The value of partners' personal assets and liabilities on February 1,2011 were as follows:
Required:
Prepare the final statement of partnership liquidation.