Chapter 15 - Quizlet

A partnership is currently holding $400,000 in assets and $234,000 in liabilities. The partnership is to be liquidated, and $20,000 is the best estimation of the expenses that will be incurred during this process. The four partners share profits and losses as shown. Capital balances at the start of the liquidation follow: Kevin, capital (40%) $59,000 Michael, capital (30%) $39,000 Brendan, capital (10%) $34,000 Jonathan, capital (20%) $34,000 The partners realize that Brendan will be the first partner to start receiving cash. How much will Brendan receive before any of the other partners collect any cash? a. $12,250 b. $14,750 c. $17,000 d. $19,500

$17,000 Capital Balance/% = Maximum allocated loss Step 1: Capital Balance / % = Split & Take the Lowest Step 2: Use Formula Balance X Leftover Share %, e.g. 3/7 Step 3: Repeat Till it Goes to !7,000

A partnership is currently holding $400,000 in assets and $234,000 in liabilities. The partnership is to be liquidated, and $20,000 is the best estimation of the expenses that will be incurred during this process. The four partners share profits and losses as shown. Capital balances at the start of the liquidation follow: Kevin, capital (40%) . . . . . . . . . . . $59,000 Michael, capital (30%) . . . . . . . . . 39,000 Brendan, capital (10%) . . . . . . . . 34,000 Jonathan, capital (20%) . . . . . . . . 34,000 The partners realize that Brendan will be the first partner to start receiving cash. How much cash will Brendan receive before any of the other partners collect any cash? a. $12,250. b. $14,750. c. $17,000. d. $19,500.

$17,000.

If the partner is able to cover his/her deficit then

remaining assets are increased to equal the remaining positive capital balances and the liquidation proceeds

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

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 account balances: Cash, $70,000; Other Assets, $540,000; Liabilities, $260,000; Nixon (50 percent of profits and losses), $170,000; Cleveland (30 percent), $110,000; Pierce (20 percent), $70,000. The company liquidates, and $8,000 becomes available to the partners. Who gets the $8,000?

Cleveland will receive $6,800 and Pierce will receive $1,200

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

A local partnership is liquidating and is currently reporting the following capital balances: Angela, capital (50% share of all profits and losses) $ 19,000 Woodrow, capital (30%) 18,000 Cassidy, capital (20%) (12,000) Cassidy has indicated that a forthcoming contribution will cover the $12,000 deficit. However, the two remaining partners have asked to receive the $25,000 in cash that is presently available. How much of this money should each of the partners be given? a. Angela, $13,000; Woodrow, $12,000. b. Angela, $11,500; Woodrow, $13,500. c. Angela, $12,000; Woodrow, $13,000. d. Angela, $12,500; Woodrow, $12,500.

b. Angela, $11,500; Woodrow, $13,500.

A local partnership is considering possible liquidation because one of the partners (Bell) is insolvent. Capital balances at the current time are as follows. Profits and losses are divided on a 4:3:2:1 basis, respectively. Bell, Capital $50,000 Hardy, Capital $56,000 Dennard, Capital $14,000 Suddath, Capital $80,000 Bell's creditors have filed a $21,000 claim against the partnership's assets. The partnership currently holds assets reported at $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? a. -0- b. $2,000 c. $2,800 d. $6,000

$2,000 Explanation: Take Assets Minus Sold = ( 300,000 - 190,000 ) Take Everyones Percent = ( 110,000 * ??% ) The Dennard's Negative Split = ( 4:3:1 ) Bell will have a balance of $2,000

A partnership has the following balance sheet just before the final liquidation is about to begin: Cash $26,000 Inventory $31,000 Other Assets $62,000 Total $119,000 Liabilities $50,000 Art, Capital (40% of Profits and losses) $18,000 Raymond, Capital (30%) $25,000 Darby, Capital (30%) $26,000 Total $119,000 Liquidation expenses are estimated to be $12,000. The other assets are sold for $40,000. What distribution can be made to the partners? a. -0- to Art, $1,500 to Raymond, $2,500 to Darby b. $1,333 to Art, $1,333 to Raymond, $1,334 to Darby c. -0- to Art, $1,200 to Raymond, $2,800 to Darby d. $600 to Art, $1,200 to Raymond, $2,200 to Darby

-0- to Art, $1,500 to Raymond, $2,500 to Darby

What is a predistribution plan? a. A guideline for the cash distributions to partners during a liquidation b. A list of the procedures to be performed during a liquidation c. A determination of the final cash distribution to the partners on the settlement date d. A detailed list of the transactions that will transpire in the reorganization of a partnership

A guideline for the cash distributions to partners during a liquidation

Predistribution Schedule

[a one-time calculation that outlines the entire distribution of cash throughout the liquidation process] -The schedule calculates the largest loss each partner can absorb and schedules out the elimination of each partner, step by step

Safe Payment Schedule

[only covers the safe allocation of current cash and has to be redone each time cash is to be distributed] When the liquidation process is handled over an extended period of time there may be a desire to make periodic distributions of some of the accumulated cash; a schedule would be developed to calculate the effect of projected transactions on the capital account of each partner with the constant conservative assumptions that all assets not yet converted to cash will be total losses and that partners with capital deficits will be unable to cover those deficits

What is a predistribution plan?

a guide for the cash distributions to partners during a liquidation

6. What is a predistribution plan? a. A guide for the cash distributions to partners during a liquidation. b. A list of the procedures to be performed during a liquidation. c. A determination of the final cash distribution to the partners on the settlement date. d. A detailed list of the transactions that will transpire in the reorganization of a partnership.

a. A guide for the cash distributions to partners during a liquidation.

A local partnership is considering possible liquidation because one of the partners (Bell) is insolvent. Capital balances at the current time are as follows. Profits and losses are divided on a 4:3:2:1 basis, respectively. Bell, capital . . . . . . . . . . . . . . . . . $ 50,000 Hardy, capital . . . . . . . . . . . . . . . . 56,000 Dennard, capital . . . . . . . . . . . . . 14,000 Suddath, capital . . . . . . . . . . . . . . 80,000 Bell's creditors have filed a $21,000 claim against the partnership's assets. The partnership currently holds assets reported at $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? a. -0- . b. $2,000. c. $2,800. d. $6,000.

b. $2,000.

If a partnership is liquidated, how is the final allocation of business assets made to the partners? a. Equally. b. According to the profit and loss ratio. c. According to the final capital account balances. d. According to the initial investment made by each of the partners.

c. According to the final capital account balances.

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

If the partner is unable to cover his/her deficit then

the remaining partners' capital accounts are debited [in their income/loss sharing ratios] to cover the deficit [i.e., debit each remaining capital balance and credit the capital account of the partner with the deficit]

Meaning of The partners are jointly and severally liable

which means that each one is exposed to covering partnership obligations regardless of the profit/loss sharing agreement

Five general steps that follow in the process of accounting for the termination and liquidation of a partnership

1. Conversion of all noncash assets to cash 2. Allocation of all resulting gains and losses to the partners [based on their income/loss sharing ratios] 3. Payments of liabilities and expenses 4. "Squaring up" of any deficit capital balances 5. Distribution of remaining cash to partners according to their capital balances

During a liquidation, if a partner's capital account balance drops below zero, what should happen? a. The other partners file a legal suit against the partner with the deficit balance b. The partner with the highest capital balance contributes sufficient assets to eliminate the deficit c. The deficit balance is removed from the accounting records with only the remaining partners sharing in future gains and losses d. The partner with a deficit contributes enough assets to offset the deficit balance

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

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

If a partnership is liquidated, how is the final allocation of business assets made to the partners? a. Equally b. According to the profit and loss ratio c. According to the final capital account balances d. According to the initial investment made by each of the partners

According to the final capital account balances

A local partnership is liquidating and is currently reporting the following capital balances: Angela, capital (50% share of all profits and losses) $19,000 Woodrow, capital (30%) $18,000 Cassidy, capital (20%) ($12,000) Cassidy has indicated that a forthcoming contribution will cover the $12,000 deficit. However, the two remaining partners have asked to receive the $25,000 in cash that is presently available. How much of this money should each of the partners be given? a. Angela, $13,000; Woodrow, $12,000 b. Angela, $11,500; Woodrow, $13,500 c. Angela, $12,000; Woodrow $13,000 d. Angela, $12,500; Woodrow, $12,500

Angela, $11,500; Woodrow, $13,500 Explanation: Deficit distributed as: Angela = (5/8) x 12,000 = 7,500 Woodrow = (3/8) x 12,000 = 4,500 New partner's capital: Angela = (19,000-7,500) = $11,500 Woodrow = (18,000-4,500) = $13,500

A partnership has gone through liquidation and now reports the following account balances: Cash . . . . . . . . . . . . . . . . . . . . . . $ 16,000 Loan from Jones . . . . . . . . . . . . . 3,000 Wayman, capital . . . . . . . . . . . . . (2,000) (deficit) Jones, capital . . . . . . . . . . . . . . . . (5,000) (deficit) Fuller, capital . . . . . . . . . . . . . . . . 13,000 Rogers, capital . . . . . . . . . . . . . . . 7,000 Profits and losses are allocated on the following basis: Wayman, 30 percent; Jones, 20 percent Fuller, 30 percent; and Rogers, 20 percent. Which of the following events should occur now? a. Jones should receive $3,000 cash because of the loan balance. b. Fuller should receive $11,800 and Rogers $4,200. c. Fuller should receive $10,600 and Rogers $5,400. d. Jones should receive $3,000, Fuller $8,800, and Rogers $4,200.

c. Fuller should receive $10,600 and Rogers $5,400.

Carney, Pierce, Menton, and Hoehn are partners who share profits and losses on a 4:3:2:1 basis, respectively. They are beginning to liquidate the business. At the start of this process, capital balances are as follows: Carney, capital . . . . . . . . . . . . . . . $60,000 Pierce, capital . . . . . . . . . . . . . . . . 27,000 Menton, capital . . . . . . . . . . . . . . 43,000 Hoehn, capital . . . . . . . . . . . . . . . 20,000 Which of the following statements is true? a. The first available $2,000 will go to Hoehn. b. Carney will be the last partner to receive any available cash. c. The first available $3,000 will go to Menton. d. Carney will collect a portion of any available cash before Hoehn receives money.

c. The first available $3,000 will go to Menton.

A partnership has the following capital balances: A (20 percent of profits and losses) 5 $100,000; B (30 percent of profits and losses) 5 $120,000; C (50 percent of profits and losses)5 $180,000. If the partnership is to be liquidated and $30,000 becomes immediately available, who gets that money? a. $6,000 to A, $9,000 to B, $15,000 to C. b. $22,000 to A, $3,000 to B, $5,000 to C. c. $22,000 to A, $8,000 to B, -0- to C. d. $24,000 to A, $6,000 to B, -0- to C.

d. $24,000 to A, $6,000 to B, -0- to C.

A partnership has the following capital balances: A (20% of profits and losses) = $100,000 B (30% of profits and losses) = $120,000 C (50% of profits and losses) = $180,000 If the partnership is to be liquidated and $30,000 becomes immediately available, who gets that money? a. $6,000 to A, $9,000 to B, $15,000 to C b. $22,000 to A, $3,000 to B, $5,000 to C. c. $22,000 to A, $8,000 to B, -0- to C d. $24,000 to A, $6,000 to B, -0- to c

d. $24,000 to A, $6,000 to B, -0- to c Remember to reduce the total amount by the liquidation.

During a liquidation, if a partner's capital account balance drops below zero, what should happen? a. The other partners file a legal suit against the partner with the deficit balance. b. The partner with the highest capital balance contributes sufficient assets to eliminate the deficit. c. The deficit balance is removed from the accounting records with only the remaining partners sharing in future gains and losses. d. The partner with a deficit contributes enough assets to offset the deficit balance.

d. The partner with a deficit contributes enough assets to offset the deficit balance.

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