CH 10 - ACG 5205

Partners A, B,and C share profits and losses in a ratio of 50%, 40%, 10%, respectively. Simulated losses result in A having a deficit capital balance. The amount of A's deficit that should be allocated to B's capital account in a proposed statement of liquidation is

80%.;calculated as 40%/(40% + 10%).

MLA Ex. (4)

Whatever balance is left in cash will be distributed.

A partnership has four partners, two of whom have negative capital balances and one of these is personally insolvent. When the personally insolvent partner's deficit capital balance is written off

all of the other partners absorb the loss.

A statement of partnership liquidation reports updated balances in the partnership's assets, liabilities, and capital accounts

at periodic intervals.

The maximum amount of loss that can be absorbed by an individual partner is calculated

by dividing the partner's capital balance by their profit and loss allocation.

Preparation of a proposed schedule of liquidation is based on the assumption that the partnership's noncash assets

cannot be sold for cash.

When other partners are unable to recover any part of an insolvent partner's deficit capital balance, the insolvent partner's capital account should be closed and the other partners' capital accounts should be

debited for each partner's share of the deficit.

Prior to developing a predistribution plan, the accountant must calculate the sensitivity to ____ of each partner's capital account.

losses

To prepare a predistribution plan, the accountant must determine the

maximum amount of loss that can be absorbed by each partner.

At the time of partnership termination, Partner A is personally insolvent and has a negative capital balance. Partners B and C must absorb A's deficit

on the basis of their respective profit and loss ratios.

The negative (deficit) balance in a partner's capital account is closed to zero

only upon final resolution of the amount, if any, the partner will contribute to the partnership to offset the deficit capital balance.

A statement of partnership liquidation should include several columns of information that show changes in

partnership liabilities. individual partners' capital accounts. partnership cash.

A safe payment is the amount that can be distributed to an individual partner during the liquidation process while ensuring that the partner's capital account maintains a

safe balance.

A "liquidation made in installments" results in

several distributions of cash to partners during the liquidation process.

At the beginning of a liquidation, a loan made by the partnership to an individual partner would be

subtracted from that partner's capital account.

A partner's safe capital balance is the amount

that must remain in that partner's capital account to absorb any future losses.

When a partner has a negative capital balance, but is personally solvent,

that partner makes a capital contribution to the partnership.

Cash can be safely distributed to an individual partner in a preliminary distribution of partnership assets only if

that partner's capital balance is large enough to absorb all possible future losses.

A partner with a negative capital balance should make a contribution to the partnership in an amount equal to

that partner's negative capital balance.

The earliest date at which some partnership cash can be distributed to partners is

the date of termination.

A safe payment is the amount that can be distributed to an individual partner during the liquidation process while ensuring that future liquidation transactions cannot result in

the partner having a deficit capital balance.

Some amount of partnership cash can be safely distributed to partners at the date of partnership termination if

the partnership is solvent.

In preparing a proposed schedule of liquidation, the accountant assumes that all future partnership transactions will result in

total losses.

True or false: In preparing a proposed schedule of liquidation assumed losses should be recorded before actual transactions.

False; Actual transactions should be reflected before assumed losses in a proposed schedule of liquidation.

When partnership assets are sold on a piecemeal basis over time and cash is distributed to partners after each sale of assets,

a new proposed schedule of liquidation should be prepared before each distribution of cash to partners.

At the beginning of a liquidation, a loan made by an individual partner to the partnership would be

added to that partner's capital account.

A partnership's accountant determines that Partner A has a "maximum loss that can be absorbed" of $50,000. If the partnership incurs a loss of $50,000 in liquidating noncash assets, Partner A will

not receive any cash distribution from the partnership liquidation.

When a predistribution plan is used to determine distributions of cash to partners, distributions are made to partners on the basis of their original profit and loss percentages

only after all partners begin to receive cash based on the predistribution plan.

Once all partners have begun to receive cash based on a predistribution plan, additional amounts of cash generated from the liquidation of noncash assets can be distributed to partners based on

their original profit and loss ratios.

A statement of partnership liquidation discloses

current capital balances. assets still held by the partnership. partnership liabilities remaining to be paid.

At the time of the termination of the ABCD partnership, Partner A and Partner B have negative capital balances, and Partner A is personally insolvent. After Partner A's deficit capital balance is written-off, the balance in Partner B's capital account

is a larger negative amount.

solvent=

personally able to pay insolvent= perosnally unable to pat

A predistribution plan indicates

the order in which partners receive cash as it becomes available from the sale of noncash assets. the amount (or percentage) each partner receives in each distribution of cash that becomes available from the sale of noncash assets.

By creating a predistribution plan, an accountant can avoid creating several proposed schedules of liquidation over the life of a partnership liquidation.

True; A single predistribution plan obviates the need to produce a new proposed schedule of liquidation before each distribution of cash to partners.

When other partners are unable to recover any part of an insolvent partner's deficit capital balance, the insolvent partner's capital account should be closed by making

a credit to his/her capital account. Because, the partner has an negative capital balance, ( a debit) must credit the account to zero it out.

The difference between the amount of partnership cash on hand at the beginning of a liquidation and the amount of partnership capital needed to pay partnership liabilities and absorb all possible future losses

is the safe balance in cash that can be immediately distributed to partners.

Partnership Liquidation Schedule

(10,000) for each partner = (60,000) PPE + 40,000 cash recevied = (20,000) 20,000 is allocated evenly (50%) to each partner) Max Loss Possible = Total of noncash assets, then allocate to each partner as negative numbers

The predistribution plan should indicate that, as cash become available for distribution in a partnership liquidation, the first recipient(s) of cash

are the partnership's creditors. (liabilities)

In preparing a proposed schedule of liquidation, the accountant assumes that liquidation expenses will be the

maximum amount in the range of probable future expenses.

A partner's negative capital balance remains on the partnership's books until there is a final ___ resolution , Correct Unavailable of that partner's deficit

resolution

MLA - Ex. (2)

The smaller the MLA, the higher the rank Ex . if there was a loss of 40,000, allocate the loss by profit/loss percentages.. Before A receives anything, B should receive a distribution of 30,000 since it is ranked 1st

Angela, Barb, and Chris have decided to terminate their partnership. A $100,000 loss would reduce Angela's capital account balance to zero, an additional $50,000 loss would reduce Barb's capital account to zero, and a further $20,000 loss would reduce Chris's capital account to zero. As cash becomes available for distribution to partners,

the first $20,000 should be paid to Chris.

True or false: Individual partners can be held personally liable for all partnership obligations.

T

After simulating a series of losses that reduces each partner's capital account to a zero balance, the partner whose capital account balance is reduced to zero last is the partner who will be

first to receive a cash distribution as partnership assets are sold.

The proposed schedule of liquidation developed at the start of the liquidation can be used to determine the amount of cash to distribute to individual partners when partnership assets are sold on a piecemeal basis and cash is distributed to partners in installments.

False; A new proposed schedule of liquidation should be prepared before each distribution of cash to partners.

A preliminary distribution of cash can be safely made to partners at the beginning of a partnership liquidation by assuming that all partners are personally

insolvent Accountant assumes that all transactions are total losses and partners are personally insolvent.

Only those partners with a capital balance that is large enough to absorb all possible future ___ will receive cash in a preliminary distribution of partnership assets.

losses