Chapter 15: Partnerships: Termination and Liquidation

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

(a) deficits

In addition to accounting for the transactions that occur during a partnership liquidation, the partnership's accountant should work to ensure the __________(a) treatment of all parties involved in the liquidation.

(a) equitable

Dividing a partner's capital balance by their profit and loss allocation determines that partner's __________(a) loss that can be absorbed.

(a) maximum

A single plan drawn up at the beginning of a liquidation that serves as a guide to all future distributions of cash to partners is known as a __________(a) plan.

(a) predistribution

When making distributions of cash to partners during the liquidation process, the accountant must ensure that each partner has a __________(a) capital balance, which is the minimum amount that a partner must retain in their capital account to be able to absorb future losses.

(a) safe

A proposed schedule of liquidation is based on the assumption that all future partnership transactions will result in __________(a) losses.

(a) total

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

-True

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 through -a reduction in partnership assets. -a reduction in their capital accounts. -an increase in partnership liabilities.

-a reduction in their capital accounts.

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. -subtracted from that partner's capital account. -subtracted from the other partners' capital accounts.

-added to that partner's capital account.

At the beginning of a liquidation, a loan made by an individual partner to the partnership would be -subtracted from that partner's capital account. -subtracted from the other partners' capital accounts. -added to that partner's capital account.

-added to that partner's capital account.

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 -only the other partner with a negative capital balance absorbs the loss. -only the other partners with positive capital balances absorb the loss. -all of the other partners absorb the loss.

-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 -only at the end of the liquidation process. -only at the end of each month. -at periodic intervals.

-at periodic intervals.

The maximum amount of loss that can be absorbed by an individual partner is calculated -by multiplying the partner's capital balance by their profit and loss allocation. -by dividing the partner's capital balance by the number of partners in the partnership. -by dividing the partner's capital balance by their profit and loss allocation.

-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 -will be sold for 50 percent of their book value. -will be sold for 100 percent of their book value. -cannot be sold for cash.

-cannot be sold for cash.

A statement of partnership liquidation discloses -current capital balances. -assets still held by the partnership. -future cash distributions to individual partners. -partnership liabilities remaining to be paid.

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

The procedures involved in terminating and liquidating a partnership include -transferring partnership cash to a new partnership formed by those individual partners who wish to continue in a partnership. -distributing partnership cash to individual partners after partnership liabilities and liquidation expenses have been paid. -paying partnership liabilities and liquidation expenses after partnership cash has been distributed to partners.

-distributing partnership cash to individual partners after partnership liabilities and liquidation expenses have been 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. -is a smaller negative amount. -remains the same.

-is a larger negative amount.

During a partnership liquidation, debits are made to individual partners' capital accounts to recognize each partner's share of -the repayment of partnership liabilities. -gains on sales of partnership assets. -losses on sales of partnership assets.

-losses on sales of partnership assets.

In preparing a proposed schedule of liquidation, the accountant assumes that liquidation expenses will be the -midpoint amount in the range of probable future expenses. -minimum amount in the range of probable future expenses. -maximum amount in the range of probable future expenses.

-maximum amount in the range of probable future expenses.

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 capital balances. -on the basis of their respective profit and loss ratios. -in equal amounts.

-on the basis of their respective profit and loss ratios.

A statement of partnership liquidation reports updated balances in the partnership's assets, liabilities, and -gains and losses. -revenues and expenses. -partners' capital accounts.

-partners' capital accounts.

A statement of partnership liquidation should include several columns of information that show changes in -partnership cash. -partnership revenues and expenses. -individual partners' capital accounts. -partnership liabilities.

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

In addition to accounting for the transactions that transpire during a partnership liquidation, the partnership's accountant -should take the lead role in making sure that the partnership's assets are sold at the highest price possible. -should work to make sure that all parties involved in the liquidation are treated equitably. -might be asked to make recommendations regarding the distribution of partnership funds.

-should work to make sure that all parties involved in the liquidation are treated equitably. -might be asked to make recommendations regarding the distribution of partnership funds.

At the beginning of a liquidation, a loan made by the partnership to an individual partner would be -added to that partner's capital account. -subtracted from the other partners' capital accounts. -subtracted from that partner's capital account. -added to the other partners' capital accounts.

-subtracted from that partner's capital account.

A partner's safe capital balance is the amount -that other partners are assured to receive in cash from that partner. -that partner has contributed to the partnership over time. -that must remain in that partner's capital account to absorb any future losses.

-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. -the other partners absorb that partner's negative capital balance. -that partner makes cash contributions to the other partners based on their profit and loss ratios.

-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 cover that partner's share of losses on noncash assets and liquidation expenses. -the other partners' capital balances are large enough to absorb their shares of all possible future losses. -that partner's capital balance is large enough to absorb all possible future losses.

-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 -the sum of the other partners' capital balances. -that partner's negative capital balance. -the partnership's current cash account balance.

-that partner's negative capital balance.

The earliest date at which some partnership cash can be distributed to partners is -the first date at which cash exceeds liquidation expenses. -the date of termination. -the first date at which partnership noncash assets are sold.

-the date of termination.

Some amount of partnership cash can be safely distributed to partners at the date of partnership termination if -all partners have a positive capital balance. -the partnership liquidation will take longer than 12 months to complete. -the partnership is solvent.

-the partnership is solvent.

Gains and losses on the sale of assets during a partnership liquidation are recorded directly in partners' capital accounts -so that the current balance in partnership assets can be ascertained. -to keep track of changes in partners' capital balances. -so that the partnership's ending net income can be determined.

-to keep track of changes in partners' capital balances.

Gains and losses on the sale of assets during a partnership liquidation are recorded directly in partners' capital accounts -so that the partnership's ending net income can be determined. -so that the current balance in partnership assets can be ascertained. -to keep track of changes in partners' capital balances.

-to keep track of changes in partners' capital balances.

In preparing a proposed schedule of liquidation, the accountant assumes that all future partnership transactions will result in -capital account increases. -cash inflows. -total losses.

-total losses.

The procedures involved in terminating and liquidating a partnership include -using cash from the sale of partnership assets to pay any expenses incurred in the liquidation process. -using cash from the sale of partnership assets to pay off partnership liabilities. -borrowing additional cash to pay off existing partnership liabilities. -borrowing additional cash to pay any expenses incurred in the liquidation process.

-using cash from the sale of partnership assets to pay any expenses incurred in the liquidation process. -using cash from the sale of partnership assets to pay off partnership liabilities.