Chapter 15 - book questions

During a liquidation, if a partner's capital account balance drops below zero, what should happen?

the partner with a deficit contributes enough assets to offset the deficit balance

What is a predistribution plan?

a guide for the cash distributions to partners during a liquidation

A partnership has the following capital balances: X (50% of profits and losses) = $150,000; Y (30% of profits and losses) = $120,000; Z (20% of profits and losses) = $80,000. If the partnership is to be liquidated and $30,000 becomes immediately available, who gets that money?

X: 150,000 - 160,000 = (10,000) Y: 120,000 - 96,000 = 24,000 Z: 80,000 - 64,000 = 16,000 Deficit: Y: 54,000 - 6,000 = $18,000 Z: 16,000 - 4,000 = $12,000

If a partnership is liquidated, how is the final allocation of business assets mad to the partners?

according to the final capital account balances

Which of the following statements is true concerning the accounting for a partnership going through liquidation? A. gains and losses are reported directly as increases and decreases in the appropriate capital account B. a separate income statement is created to measure only the profit or loss generated during liquidation C. because gains and losses rarely occur during liquidation, no special accounting treatment is warranted D. within a liquidation, all gains and losses are divided equally among the partners

A. gains and losses are reported directly as increases and decreases in the appropriate capital account

A local partnership is liquidating and is currently reporting the following capital balances: Barley, capital (50% share of all profits and losses) = $44,000 Carter (30%) = 32,000 Desai (20%) = (24,000) Desai has indicated that a forthcoming contribution will cover the $24,000 deficit. However, the two remaining partners have asked to receive the $52,000 in cash that is currently available. How much of this money should each of the partners receive?

Barley: 44,000 - [(5/8) x 24,000)] = $29,000 Carter: 32,000 - [(3/8) x 24,000)] = $23,000

A partnership has the following balance sheet prior to liquidation (partners' profit and loss rations are in parentheses): cash = $33,000 other assets = 100,000 total = 133,000 liabilities = $50,000 Playa (40%) = 24,000 Bahia (30%) = 29,000 Arco (30%) = 30,000 total = 133,000 During liquidation, other assets are sold for $80,000, liabilities are paid in full, and $15,000 in liquidation expenses are paid. What amount of cash does each partner receive as a result of this liquidation?

loss on sale of assets = 20,000 Playa: 24,000 - 8,000 - 6,000 = 10,000 Bahia: 29,000 - 6,000 - 4,500 = 18,500 Arco: 30,000 - 6000 - 4,500 = 19,500

A partnership is considering possible liquidation because one of the partners (Bell) is personally insolvent. Profits and losses are divided on a 4:3:2:1 basis, respectively. Capital balances at the current time are: Bell = $50,000 Hardy = 56,000 Dennard = 14,000 Suddath = 80,000 Bell's creditors have filed a $21,000 claim against the partnership's assets. The partnership currently holds assets of $300,000 and liabilities of $100,000. If the assets can be sold for $190,000, what is the minimum amount that Bell's creditors would receive?

loss on sale of assets = 300,000 - 190,000 = 110,000 Bell = 50,000 - 44,000 = 6,000 Hardy = 56,000 - 33,000 = 23,000 Dennard = 14,000 - 22,000 = (8,000) Suddath = 80,000 - 11,000 = 69,000 Loss from Dennard deficit: Bell = 6,000 - [8,000 x (4/8)] = $2,000 minimum amount creditors would receive