Partnership Liquidation T/F MC

If a liquidating limited liability partnership is insolvent: A) The total of the debit-balance partners' capital accounts exceeds the total of the credit-balance capital accounts B) Total liabilities exceeds total partners' capital C) All noncash assets have been realized D) Total cash is less than total liabilities

A

In the installment liquidation of a limited liability partnership, the first partner to receive cash after all partnership liabilities have been paid is the partner who has the largest: A) Capital per unit of income sharing B) Capital account balance C) Income-sharing ratio D) Loan receivable from the partnership

A

The following condensed balance sheet is for Alexander, Bell & Corbin LLP, whose partners share net income and losses in a 3:1:1 ratio, respectively: Cash $80,000 Other assets 280,000 Total $360,000 Liabilities $140,000 Alexander, capital 100,000 Bell, capital 100,000 Corbin, capital 20,000 Total $360,000 The partners agreed to liquidate the partnership after realization of the other assets. The partners had no net personal assets. The amount of cash that Alexander receives if the other assets realize $160,000 is: A) $25,000 B) $26,000 C) $28,000 D) $100,000 E) Some other amount

A Rationale: ($100,000 - $72,000 - $3,000 = $25,000)

According to the Uniform Partnership Act, unpaid creditors of an insolvent partner of a liquidating general partnership have access to assets of the partnership: A) On the same basis as creditors of the partnership B) After partnership creditors have been paid in full, but only to the extent of the insolvent partner's equity in the partnership C) After partnership creditors and loans payable to partners have been paid in full D) Under no circumstances

B

In a marshaling of assets, the claims of limited liability partnership creditors rank: A) Second in priority to partners' loans against partnership assets B) Second in priority to partners' personal creditors against partners' personal assets C) As part of the total owners' equity of the partnership D) In none of the foregoing ways

B

In the liquidation of a limited liability partnership, a loan payable to a partner by the partnership is: A) Paid immediately after all outside creditors have been paid in full B) Considered to be the same as the partner's capital account C) Used to absorb the partner's share of losses on realization of assets D) Considered to be a liability of the partnership

B

Refer to the above information. If the facts are as in the previous question, except that $3,000 cash is to be withheld for potential liquidation costs, the respective partners would receive (to the nearest dollar): A) Arch, $0, Bole, $11,333, Cusp, $5,667 B) Arch, $0, Bole, $1,000, Cusp, $16,000 C) Arch, $6,800, Bole, $6,800, Cusp, $3,400 D) Arch, $5,667, Bole, $5,667, Cusp, $5,666 E) Some other amounts

B

Taylor, Ullman & Victor Limited Liability Partnership, whose partners share net income or loss equally, is in liquidation. Partner Taylor, whose capital account had a debit balance of $3,000, paid a $4,000 trade account payable of the partnership. The appropriate journal entry (explanation omitted) for the partnership is: A) DR: Cash 4,000 CR: Taylor, Capital 4,000 B) DR: Trade Accounts Payable 4,000 Taylor, Capital 4,000 C) DR: Trade Accounts Payable 4,000 CR: Taylor, Capital 3,000 CR: Ullman, Capital 500 CR: Victor, Capital 500 D) DR: Trade Accounts Payable 4,000 CR: Loan Payable to Taylor 4,000

B

The following balance sheet is for Arch, Bole & Cusp LLP, whose partners share net income and losses in a 2:2:1 ratio, respectively: Assets Cash $20,000 Other assets 180,000 Liabilities & Partners' Capital Liabilities $50,000 Arch, Capital 37,000 Bole, Capital 65,000 Cusp, Capital 48,000 If Arch, Bole & Cusp LLP is liquidated by the realization of other assets in installments, the first realization of other assets with a carrying amount of $90,000 realizes $50,000, and all cash available after settlement with creditors is distributed to the partners, the respective partners would receive (to the nearest dollar): A) Arch, $0, Bole, $13,333, Cusp, $6,667 B) Arch, $0, Bole, $3,000, Cusp, $17,000 C) Arch, $8,000, Bole, $8 000, Cusp, $4,000 D) Arch, $6,667, Bole, $6,667, Cusp, $6,666 E) Some other amounts

B

Oliver, Patrick & Quincy LLP, is beginning liquidation. It has no cash, total liabilities of $60,000, including a $10,000 loan payable to Patrick, and equal partners' capital account balances of $40,000. The income-sharing ratio is 5:1:4, respectively. If a portion of the noncash assets with a carrying amount of $140,000 realizes $120,000, the cash payment that Patrick receives is: A) $20,000 B) $44,000 C) $53,000 D) Some other amount

B Rationale: ($40,000 + $10,000 - $2,000 - $4,000 = $44,000)

During the liquidation of Gym, Hob & Ing LLP, Partner Hob withdrew equipment with a cost to the partnership of $18,000, accumulated depreciation of $8,000, and a current fair value of $13,000. The partners shared net income and losses equally. The net debit to Hob's capital account (including any gain or loss on disposal of the equipment), assuming the noncash asset may be distributed safely to Hob, is: A) $10,000 B) $12,000 C) $13,000 D) $18,000 E) Some other amount

B Rationale: ($13,000 - $1,000 share of gain = $12,000)

If cash payments to partners of a limited liability partnership in liquidation are delayed until all noncash assets have been realized, any cash remaining after all partnership creditors have been paid is distributed: A) According to the liquidator's best judgment B) In the ratio for sharing net income and losses C) In amounts equal to the partners' loan and capital account balances D) In some other manner

C

In the preparation of an advance plan for installment payments of cash to partners of a liquidating limited liability partnership, each partner's capital per unit of income sharing is computed by: A) Dividing each partner's capital account balance by the percentage of that partner's capital account balance of total partners' capital B) Multiplying each partner's capital account balance by the percentage of that partner's capital account balance of total partners' capital C) Dividing the total of each partner's capital account, plus any loan receivable from the partnership and minus any loan payable to the partnership, by the partner's income-sharing ratio D) Some other method

C

In the installment liquidation of a limited liability partnership, each installment of cash is distributed: A) In the partners' income-sharing ratio B) In the ratio of the partners' capital account balances C) As agreed to by the partners D) As if no more cash would be forthcoming

D

The partners of Jensen, Smith & Hart LLP shared net income and losses in the ratio of 5:3:2, respectively. The partners decided to liquidate the partnership when its assets consisted of cash, $40,000, and other assets, $210,000. The liabilities and partners' capital were as follows: Liabilities $60,000 Jensen, capital 48,000 Smith, capital 72,000 Hart, capital 70,000 If other assets with a carrying amount of $120,000 realized $90,000, the amount of cash that each partner may receive at that time is: Jensen Smith Hart A) $45,000 $27,000 $18,000 B) $35,000 $21,000 $14,000 C) $0 $30,000 $40,000 D) $0 $28,800 $41,200

D

If a limited liability partnership is incorporated, the assets transferred to the corporation are entered in the accounting records of the corporation at current fair values.

True

If a limited liability partnership is incorporated, the corporation generally records the amount of the partnership's allowance for doubtful accounts, but does not record the accumulated depreciation of plant assets transferred to the corporation by the partnership.

True

If a partner of a liquidating limited liability partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the income-sharing ratio of those partners.

True

If the partners' capital account balances have been reduced to the income-sharing ratio, subsequent cash payments to partners during liquidation of a limited liability partnership may be made in the ratio of their capital account balances.

True

In the computation of the amount of cash that may be paid to partners of a liquidating limited liability partnership on a specific date, accountants may assume that the maximum potential loss will be equal to the total of remaining noncash assets plus estimated liquidation costs.

True

The fiscal year of a joint venture need not coincide with the fiscal years of the venturers.

True

The use of the equity method of accounting by investors in unincorporated joint ventures results in off-balance-sheet financing by the investors.

True

Two of the journal entries prepared by an investor in an unincorporated joint venture under the proportionate share method of accounting are identical to journal entries prepared under the equity method of accounting.

True

A loan receivable from a partner is added to the partner's capital account balance in the preparation of a cash distribution program to be used by the liquidator of the limited liability partnership.

False

After the realization of all noncash assets and the distribution of all available cash to the creditors, Kapp & Lodi LLP owed $15,000 to creditors. If at this point Kapp had a capital account balance of $18,000, Lodi had a capital account deficit of $3,000.

False

All cash payments to partners during the liquidation of a limited liability partnership are made in the income-sharing ratio.

False

Gains and losses from the realization of noncash assets by limited liability partnership in a liquidation are divided in the ratio of the partners' capital account balances if there is no income-sharing plan in the partnership contract.

False

In the process of liquidation, partners may receive cash from a limited liability partnership before creditors receive cash if the noncash assets of the partnership are expected to realize a gain.

False

The investor enterprise must use the equity method of accounting for an investment in an unincorporated joint venture.

False

The marshaling of assets provisions of the Uniform Partnership Act deal with the order in which assets are realized during the liquidation of a limited liability partnership.

False