CHAPTER 15

Which one of the following statements is correct?

A. If a partner of a liquidating partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the profit and loss ratio of those partners.

The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet: Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000. After the liquidation expenses of $12,000 were paid and the noncash assets sold, Creighton had a deficit of $8,000. For what amount were the noncash assets sold?

A. $170,000. [Non-Cash Assets BV $434,000 - Cash Received $170,000] + Liquidation Expenses $12,000 = Loss on Non-Cash Assets ($276,000) × 50% = Loss to Abrams ($138,000) - Capital Balance $130,000 = Creighton's Contribution to Cover $8,000

A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All liabilities have been paid. The partners' capital accounts are as follows Harry $40,000, Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2. If the building is sold for $50,000, how much cash will Waters receive in the final settlement?

B. $9,000. = $15,000 - Loss on Blg ($30,000 × .20) $6,000 = $9,000

The Keaton, Lewis, and Meador partnership had the following balance sheet just before entering liquidation: Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were sold for $60,000. How much will each partner receive in the liquidation?

B. C. Option C Non-Cash Assets BV $210,000 - Cash Received $60,000 = Loss on Non-Cash Assets ($150,000) × 20% = Loss to Keaton ($30,000) - Capital Balance $90,000 = Keaton Distribution $60,000

A local partnership has assets of cash of $130,000 and land recorded at $700,000. All liabilities have been paid and the partners are all personally insolvent. The partners' capital accounts are as follows Roberts, $500,000, Ferry, $300,000 and Mones, $30,000. The partners share profits and losses 5:3:2. If the land is sold for $450,000, how much cash will Mones receive in the final settlement?

A. $0 R = $500,000; F = $300,000; M = $30,000 with Losses Shared 5:3:2 M Share of $250,000 Loss × 20% = $50,000; Capital Balance of $30,000 is Lost; Balance = 0

A local partnership was in the process of liquidating and reported the following capital balances: Douglass indicated that the $14,000 deficit would be covered by a forthcoming contribution. However, the two remaining partners asked to receive the $31,000 that was then in the cash account. How much of this money should Zobart receive?

A. $15,467. Douglass' Deficit ($14,000) × (.35/.75) = ($6,533) + Zobart's Capital Balance $22,000 = $15,467 Distribution to Zobart

Which of the following statements is true concerning the distribution of safe payments?

A. The distribution of safe payments assumes that any capital deficit balances will prove to be a total loss to the partnership.

Which of the following statements is false concerning the partnership Schedule of Liquidation?

B. Frequent reporting by the accountant is rarely necessary.

White, Sands, and Luke has the following capital balances and profit and loss ratios: $60,000 (30%); $100,000 (20%); and $200,000 (50%). The partnership has received a predistribution plan. How would $200,000 be distributed

D. Option D White: ($200,000 - $20,000 - $140,000) × 30% = $12,000 Sands: $20,000 + $40,000 ($140,000 × 2/7) + $8,000 (($200,000 - $20,000 - $140,000) × 20%) = $68,000 Luke: $100,000 ($140,000 × 5/7) + $20,000 (($200,000 - $20,000 - $140,000) × 50%) = $120,000

When a partnership is insolvent and a partner has a deficit capital balance, that partner is legally required to:

C. contribute cash to the partnership.

Which item is not shown on the schedule of partnership liquidation?

D. Personal assets of the partners.

The Keaton, Lewis, and Meador partnership had the following balance sheet just before entering liquidation: Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. The partnership feels confident it will be able to eventually sell the noncash assets and wants to distribute some cash before paying liabilities. How much would each partner receive of a total $60,000 distribution of cash?

A. Option A Non-Cash Assets BV $210,000 - Assumed Cash Received $0 = Loss on Non-Cash Assets ($210,000) × 20% = Loss to Keaton ($42,000) - Capital Balance $90,000 = Keaton Tentative Distribution $48,000 Non-Cash Assets BV $210,000 - Cash Received $0 = Loss on Non-Cash Assets ($210,000) × 40% = Loss to Lewis ($84,000) - Capital Balance $60,000 = Lewis' Deficit ($24,000) × 1/3 = Lewis' Deficit Portion to Keaton ($8,000) Keaton Tentative Distribution $48,000 + Lewis' Deficit Portion to Keaton ($8,000) = Keaton's Safe Distribution $40,000

Dancey, Reese, Newman, and Jahn were partners who shared profits and losses on a 4:2:2:2 basis, respectively. They were beginning to liquidate their business. At the start of the process, capital balances were as follows: Which one of the following statements is true for a predistribution plan?

A. The first available $16,000 would go to Newman. D = $72,000; R = $32,000; N = $52,000; J = $24,000 with Losses Shared 4:2:2:2 First eliminate lowest value J = $24,000 - $24,000 = 0 D = $72,000 - $48,000 = $24,000 - $16,000 = $8,000 - $8,000 = 0 R = $32,000 - $24,000 = $8,000 - $8,000 = 0 N = $52,000 - $24,000 = $28,000 - $8,000 = $20,000 - $4,000 = $16,000

A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time. If the assets could be sold for $228,000, what is the minimum amount that Ezzard's creditors would have received?

B. $0. Non-Cash Assets BV $360,000 - Cash Received $228,000 = Loss on Non-Cash Assets ($132,000) × 20% = Loss to Ezzard ($26,400) - Capital Balance $17,000 = Ezzard's Deficit ($9,400), so Ezzard has $0 Available Balance to Creditors and Owes Other Partners $9,400

A local partnership was in the process of liquidating and reported the following capital balances: Douglass indicated that the $14,000 deficit would be covered by a forthcoming contribution. However, the two remaining partners asked to receive the $31,000 that was then in the cash account. How much of this money should Justice receive?

B. $15,533. Douglass' Deficit ($14,000) × (.40/.75) = ($7,467) + Justice's Capital Balance $23,000 = $15,533 Distribution to Justice

Gonda, Herron, and Morse is considering possible liquidation because partner Morse is personally insolvent. The partners have the following capital balances: $60,000, $70,000, and $40,000, respectively, and share profits and losses 30%, 45%, and 25%, respectively. The partnership has $200,000 in noncash assets that can be sold for $150,000. The partnership has $10,000 cash on hand, and $40,000 in liabilities. What is the minimum that partner Morse's creditors would receive if they have filed a claim for $50,000?

B. $27,500. M = $40,000 - Loss on Non-Cash Asset Sale ($50,000 × .25) $12,500 = $27,500

The Keaton, Lewis, and Meador partnership had the following balance sheet just before entering liquidation: Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were sold for $180,000. Liquidation expenses were $10,000. Assume that Lewis was personally insolvent and could not contribute any assets to the partnership, while Keaton and Meador were both solvent. What amount of cash would Keaton have received from the distribution of partnership assets?

B. $30,000.

Harding, Jones, and Sandy is in the process of liquidating and the partners have the following capital balances; $24,000, $24,000, and ($9,000) respectively. The partners share all profits and losses 16%, 48%, and 36%, respectively. Sandy has indicated that the ($9,000) deficit will be covered with a forthcoming contribution. The remaining partners have requested to immediately receive $20,000 in cash that is available. How should this cash be distributed?

B. Harding $17,000; Jones $3,000. Harding = $72,000; Jones = $32,000; Sandy = $52,000 beginning balances with Losses Shared 16:48:36 First eliminate Sandy's negative capital loss to Harding & Jones Losses shared 16/64 & 48/64 or 25% & 75% Harding = $24,000 - ($9,000 × 25%) $2,250 = $21,750 - $5,750 = $16,000 + ($4,000 × 25%) $1,000 = $17,000 Jones = $24,000 - ($9,000 × 75%) $6,750 = $17,250 - $17,250 = 0 + ($4,000 × 75%) $3,000 = $3,000

The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following account balances: Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and losses in a ratio of 2:4:4. Before liquidating any assets, the partners determined the amount of cash for safe payments and distributed it. The noncash assets were then sold for $120,000. The liquidation expenses of $5,000 were paid. How would the $120,000 be distributed to the partners? (Hint: Either a predistribution plan or a schedule of safe payments would be appropriate for solving this item.)

B. Option B Cash from Sale $120,000 - Liquidation Expenses $5,000 = Cash to Distribute $115,000 × 20% = $23,000 + Henry's Portion of Deficit Balance at Safe Distribution $5,000 = Henry's Distribution of $28,000

Dancey, Reese, Newman, and Jahn were partners who shared profits and losses on a 4:2:2:2 basis, respectively. They were beginning to liquidate their business. At the start of the process, capital balances were as follows: Which one of the following statements is true for a predistribution plan?

B. The first available $16,000 would go to Newman. The next $12,000 would go $8,000 to Dancey and $4,000 to Newman. The following $32,000 would be shared by Dancey, Reese, and Newman. The total distribution would be $60,000 before all four partners share any further payments in their profit and loss sharing ratios. D = $72,000; R = $32,000; N = $52,000; J = $24,000 with Losses Shared 4:2:2:2 First eliminate lowest value J = $24,000 - $24,000 = 0 D = $72,000 - $48,000 = $24,000 - $16,000 = $8,000 - $8,000 = 0 R = $32,000 - $24,000 = $8,000 - $8,000 = 0 N = $52,000 - $24,000 = $28,000 - $8,000 = $20,000 - $4,000 = $16,000

The following account balances were available for the Perry, Quincy, and Renquist partnership just before it entered liquidation: Included in Perry's capital balance is a $20,000 partnership loan owed to Perry. Perry, Quincy, and Renquist shared profits and losses in a ratio of 2:4:4. Liquidation expenses were expected to be $15,000. All partners were solvent. What would be the minimum amount for which the noncash assets must have been sold, in order for Quincy to receive some cash from the liquidation?

B. any amount in excess of $190,000.

A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time. If the assets could be sold for $228,000, what is the minimum amount that Ding's creditors would have received?

C. $2,500. Non-Cash Assets BV $360,000 - Cash Received $228,000 = Loss on Non-Cash Assets ($132,000) × 40% = Loss to Ding ($52,800) - Capital Balance $60,000 = Ding Excess after Loss $7,200 Non-Cash Assets BV $360,000 - Cash Received $228,000 = Loss on Non-Cash Assets ($132,000) × 20% = Loss to Ezzard ($26,400) - Capital Balance $17,000 = Ezzard's Deficit ($9,400) × 4/8 = Deficit to Ding's Capital Account ($4,700) Ding Excess after Loss $7,200 + Ezzard's Deficit to Ding's Capital Account ($4,700) = Ding's Available Balance to Creditors $2,500

The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following account balances: Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and losses in a ratio of 2:4:4. What amount of cash was available for safe payments, based on the above information?

C. $25,000. Cash $90,000 - Liabilities $60,000 - Liquidation Expenses $5,000 = "Safe" Cash $25,000

The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet: Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000. If the noncash assets were sold for $234,000, what amount of the loss would have been allocated to Bartle?

C. $40,000. Non-Cash Assets BV $434,000 - Cash Received $234,000 = Loss on Non-Cash Assets ($200,000) × 20% = Loss to Bartle ($40,000)

White, Sands, and Luke has the following capital balances and profit and loss ratios: $60,000 (30%); $100,000 (20%); and $200,000 (50%). The partnership has received a predistribution plan. How would $90,000 be distributed?

C. Option C Sands: $20,000 + $20,000 ($90,000 - $20,000 = $70,000 × 2/7) = $40,000 Luke: $50,000 ($90,000 - $20,000 = $70,000 × 5/7)

Which of the following could result in the termination and liquidation of a partnership? 1) Partners are incompatible and choose to cease operations. 2) There are excessive losses that are expected to continue. 3) Retirement of a partner.

E. 1, 2, and 3

The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following account balances: Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and losses in a ratio of 2:4:4. Before liquidating any assets, the partners determined the amount of cash available for safe payments. How should the amount of safe cash payments be distributed?

D. $15,000 to Henry and $10,000 to Jacobs. Non-Cash Assets BV $300,000 - Assumed Cash Received $0 = Loss on Non-Cash Assets ($300,000) × 20% = Loss to Henry ($60,000) - Capital Balance $80,000 = Henry's Provisional Balance $20,000 Non-Cash Assets BV $300,000 - Assumed Cash Received $0 = Loss on Non-Cash Assets ($300,000) × 40% = Loss to Isaac ($120,000) - Capital Balance $110,000 = Isaac's Provisional Balance ($10,000) Non-Cash Assets BV $300,000 - Assumed Cash Received $0 = Loss on Non-Cash Assets ($300,000) × 40% = Loss to Jacobs ($120,000) - Capital Balance $140,000 = Jacobs' Provisional Balance $20,000 Isaac's Provisional Balance ($10,000) + Liquidation Expenses ($5,000) = Loss for Remaining Partners ($15,000)/3 = Henry's Portion ($5,000) + Henry's Provisional Balance $20,000 = Henry's Safe Distribution $15,000 Isaac's Provisional Balance ($10,000) + Liquidation Expenses ($5,000) = Loss for Remaining Partners ($15,000) × 2/3 = Jacobs' Portion ($10,000) + Jacobs' Provisional Balance $20,000 = Jacobs' Safe Distribution $10,000

A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All liabilities have been paid. The partners' capital accounts are as follows Harry $40,000, Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2. If the building is sold for $50,000, how much cash will Harry receive in the final settlement?

D. $28,000. H = $40,000 - Loss on Blg ($30,000 × .40) $12,000 = $28,000

A local partnership has assets of cash of $130,000 and land recorded at $700,000. All liabilities have been paid and the partners are all personally insolvent. The partners' capital accounts are as follows Roberts, $500,000, Ferry, $300,000 and Mones, $30,000. The partners share profits and losses 5:3:2. If the land is sold for $450,000, how much cash will Roberts receive in the final settlement?

D. $362,500. R = $500,000; F = $300,000; M = $30,000 with Losses Shared 5:3:2 First eliminate M Balance of $30,000 in $250,000 Loss Losses now shared 5/8 & 3/8 R = $500,000 - ($220,000 × 5/8) $137,500 = $362,500 F = $300,000 - ($220,000 × 3/8) $82,500 = $217,500

A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time. If the assets could be sold for $228,000, what is the minimum amount that Laurel's creditors would have received?

D. $38,250. Non-Cash Assets BV $360,000 - Cash Received $228,000 = Loss on Non-Cash Assets ($132,000) × 20% = Loss to Laurel ($26,400) - Capital Balance $67,000 = Laurel Excess after Loss $40,600 Non-Cash Assets BV $360,000 - Cash Received $228,000 = Loss on Non-Cash Assets ($132,000) × 20% = Loss to Ezzard ($26,400) - Capital Balance $17,000 = Ezzard's Deficit ($9,400) × 2/8 = Deficit to Laurel's Capital Account ($2,350) Laurel Excess after Loss $40,600 + Ezzard's Deficit to Laurel's Capital Account ($2,350) = Laurel's Available Balance to Creditors $38,250

The following account balances were available for the Perry, Quincy, and Renquist partnership just before it entered liquidation: Included in Perry's capital balance is a $20,000 partnership loan owed to Perry. Perry, Quincy, and Renquist shared profits and losses in a ratio of 2:4:4. Liquidation expenses were expected to be $15,000. All partners were solvent. What amount would noncash assets need to be sold for in order for any partner to receive some cash?

D. $95,000 Cash $90,000 - Liquidation Expenses $15,000 - Liabilities $170,000 = Balance Needed from Non-Cash Assets ($95,000)

The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet: Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000. The noncash assets were sold for $134,000. Which partner(s) would have had to contribute assets to the partnership to cover a deficit in his or her capital account?

D. Abrams and Creighton. Non-Cash Assets BV $434,000 - Cash Received $134,000 = Loss on Non-Cash Assets ($300,000) × 30% = Loss to Abrams ($90,000) - Capital Balance $80,000 = Abrams' Contribution to Cover $10,000 Non-Cash Assets BV $434,000 - Cash Received $134,000 = Loss on Non-Cash Assets ($300,000) × 20% = Loss to Abrams ($60,000) - Capital Balance $90,000 = Bartle Excess after Loss $30,000 Non-Cash Assets BV $434,000 - Cash Received $134,000 = Loss on Non-Cash Assets ($300,000) × 50% = Loss to Abrams ($150,000) - Capital Balance $130,000 = Creighton's Contribution to Cover $20,000

What accounting transactions are not recorded by an accountant during partnership liquidation?

D. The initiation of legal action by creditors of the partnership.

What is the preferred method of resolving a partner's deficit balance, according to the Uniform Partnership Act?

D. The partner with a deficit balance must contribute personal assets to cover the deficit balance.

A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time. If the assets could be sold, for $228,000 what is the minimum amount that Tillman's creditors would have received?

E. $67,250. Non-Cash Assets BV $360,000 - Cash Received $228,000 = Loss on Non-Cash Assets ($132,000) × 20% = Loss to Tillman ($26,400) - Capital Balance $96,000 = Tillman Excess after Loss $69,600 Non-Cash Assets BV $360,000 - Cash Received $228,000 = Loss on Non-Cash Assets ($132,000) × 20% = Loss to Ezzard ($26,400) - Capital Balance $17,000 = Ezzard's Deficit ($9,400) × 2/8 = Deficit to Tillman's Capital Account ($2,350) Tillman Excess after Loss $69,600 + Ezzard's Deficit to Laurel's Capital Account ($2,350) = Tillman's Available Balance to Creditors $67,250