402 Chapter 15 Smartbook

The final accounting entry in a partnership liquidation reduces each partner's capital account to a balance of __________

zero

Two partners (X and Y) have equal balances in their capital accounts and have agreed to share profits and losses on a 55:45 basis, respectively. When partnership assets are liquidated, partner Y's capital account will be increased for Multiple choice question. 50% of gains on sales of partnership assets. 55% of gains on sales of partnership assets. 45% of gains on sales of partnership assets.

45% of gains on sales of partnership assets.

Two partners (A and B) have equal balances in their capital accounts and have agreed to share profits and losses on a 60:40 basis, respectively. When partnership assets are liquidated, partner A's capital account will be reduced for Multiple choice question. 50% of losses on sales of partnership assets. 40% of losses on sales of partnership assets. 60% of losses on sales of partnership assets.

60% of losses on sales of partnership assets.

Two partners (L and M) have equal balances in their capital accounts and have agreed to share profits and losses on a 70:30 basis, respectively. When the partnership is liquidated, partner L's capital account will be reduced for Multiple choice question. 50% of liquidation expenses. 30% of liquidation expenses. 70% of liquidation expenses.

70% of liquidation expenses.

Partners A, B,and C share profits and losses in a ratio of 50%, 40%, 10%, respectively. Simulated losses result in A having a deficit capital balance. The amount of A's deficit that should be allocated to B's capital account in a proposed statement of liquidation is Multiple choice question. 50%. 80%. 40%.

80%. 40%/(40% + 10%)

Which of the following is not one of the steps to liquidate a partnership? Multiple choice question. Noncash partnership assets are sold for cash. Any partnership cash remaining after paying liabilities and liquidation expenses is distributed to the individual partners on the basis of their seniority. Partnership liabilities and expenses incurred during the liquidation are paid from the partnership's available cash.

Any partnership cash remaining after paying liabilities and liquidation expenses is distributed to the individual partners on the basis of their seniority.

Which of the following is not a circumstance under which partnership liquidation becomes more complicated? Multiple choice question. The liquidation occurs rapidly. The liquidation takes place over an extended period of time.

The liquidation occurs rapidly.

True or false: Individual partners can be held personally liable for all partnership obligations.

True

When other partners are unable to recover any part of an insolvent partner's deficit capital balance, the insolvent partner's capital account should be closed by making Multiple choice question. a debit to his/her capital account. a debit to partnership liabilities. a credit to partnership liabilities. a credit to his/her capital account.

a credit to his/her capital account.

When partnership assets are sold on a piecemeal basis over time and cash is distributed to partners after each sale of assets, Multiple choice question. the proposed schedule of liquidation prepared at the start of the liquidation should be used to guide the distribution of cash to partners. a new proposed schedule of liquidation should be prepared before each distribution of cash to partners. there is no need to prepare a proposed schedule of liquidation.

a new proposed schedule of liquidation should be prepared before each distribution of cash to partners.

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 Multiple choice question. an increase in partnership liabilities. a reduction in their capital accounts. a reduction in partnership assets.

a reduction in their capital accounts.

At the beginning of a liquidation, a loan made by an individual partner to the partnership would be Multiple choice question. 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.

The predistribution plan should indicate that, as cash become available for distribution in a partnership liquidation, the first recipient(s) of cash Multiple choice question. are the partnership's creditors. is the partner with the largest profit and loss percentage. is the partner with the largest maximum loss that can be absorbed.

are the partnership's creditors.

A statement of partnership liquidation reports updated balances in the partnership's assets, liabilities, and capital accounts Multiple choice question. at periodic intervals. only at the end of the liquidation process. only at the end of each month.

at periodic intervals.

In preparing a proposed schedule of liquidation, the deficit in a partner's capital account resulting from simulated losses should be allocated to the other partners' capital accounts Multiple choice question. in equal amounts. based on their current capital balances. based on their relative profit and loss ratios.

based on their relative profit and loss ratios.

The maximum amount of loss that can be absorbed by an individual partner is calculated Multiple choice question. 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 Multiple choice question. will be sold for 100 percent of their book value. cannot be sold for cash. will be sold for 50 percent of their book value.

cannot be sold for cash.

In liquidating a partnership, any partnership cash remaining after paying liabilities and liquidation expenses is distributed to the individual partners on the basis of their respective _________ _________

capital balances

In a partnership liquidation, individual partners Multiple choice question. cannot lose more than their capital account balance at the start of the liquidation. cannot lose more than their original investment in the partnership. could be asked to personally satisfy all of the partnership's liabilities.

could be asked to personally satisfy all of the partnership's liabilities.

Frequent statements of partnership liquidation allow both partners and partnership __________ to stay apprised of the liquidation process.

creditors

The parties most interested in the financial information produced during a partnership liquidation are the partnership's Multiple select question. customers. creditors. stockholders. partners.

creditors. partners.

When other partners are unable to recover any part of an insolvent partner's deficit capital balance, the insolvent partner's capital account should be closed and the other partners' capital accounts should be Multiple choice question. credited for each partner's share of the deficit. debited for each partner's share of the deficit. credited in equal amounts. debited in equal amounts.

debited for each partner's share of the deficit.

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

equitable

After simulating a series of losses that reduces each partner's capital account to a zero balance, the partner whose capital account balance is reduced to zero last is the partner who will be Multiple choice question. first to receive a cash distribution as partnership assets are sold. allowed to continue the business as a sole proprietor. last to receive a cash distribution as partnership assets are sold.

first to receive a cash distribution as partnership assets are sold.

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

gains on sales of partnership assets.

A preliminary distribution of cash can be safely made to partners at the beginning of a partnership liquidation by assuming that all partners are personally _________

insolvent

The difference between the amount of partnership cash on hand at the beginning of a liquidation and the amount of partnership capital needed to pay partnership liabilities and absorb all possible future losses Multiple choice question. is the safe balance in cash that can be immediately distributed to partners. is the amount of cash that must be retained in the partnership to cover possible liquidation expenses. is the amount of cash that must be retained in the partnership for the protection of creditors.

is the safe balance in cash that can be immediately distributed to partners.

Distributing cash to partners over time during the liquidation process is referred to as a Multiple choice question. liquidation made in installments. deferred liquidation. piecemeal liquidation.

liquidation made in installments.

A statement of partnership liquidation discloses Multiple choice question. liquidation transactions already carried out. both liquidation transactions carried out to date and liquidation transactions still to be carried out. liquidation transactions still expected to be carried out.

liquidation transactions already carried out.

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

losses

Prior to developing a predistribution plan, the accountant must calculate the sensitivity to _________ of each partner's capital account.

losses

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

maximum

In preparing a proposed schedule of liquidation, the accountant assumes that liquidation expenses will be the Multiple choice question. maximum amount in the range of probable future expenses. 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.

To prepare a predistribution plan, the accountant must determine the Multiple choice question. minimum amount of cash that would be needed from the sale of noncash assets to satisfy creditors. maximum amount of loss that can be absorbed by each partner. maximum amount of loss that the partnership might incur in the liquidation process

maximum amount of loss that can be absorbed by each partner.

In addition to accounting for the transactions that transpire during a partnership liquidation, the partnership's accountant Multiple select question. should take the lead role in making sure that the partnership's assets are sold at the highest price possible. 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. should work to make sure that all parties involved in the liquidation are treated equitably.

Partners might decide to terminate their partnership because they Multiple select question. no longer wish to work together. hope to be acquired by a larger entity. believe profits have become inadequate to justify their continued investment.

no longer wish to work together. believe profits have become inadequate to justify their continued investment.

A partnership's accountant determines that Partner A has a "maximum loss that can be absorbed" of $50,000. If the partnership incurs a loss of $50,000 in liquidating noncash assets, Partner A will Multiple choice question. not receive any cash distribution from the partnership liquidation. receive a cash distribution from the partnership liquidation based on partners' relative capital balances. receive a cash distribution from the partnership liquidation based on partners' relative profit and loss percentages.

not receive any cash distribution from the partnership liquidation.

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

on the basis of their respective profit and loss ratios.

When a predistribution plan is used to determine distributions of cash to partners, distributions are made to partners on the basis of their original profit and loss percentages Multiple choice question. only after all partners begin to receive cash based on the predistribution plan. once partnership liabilities and liquidation expenses have been paid. beginning with the first distribution of cash to partners.

only after all partners begin to receive cash based on the predistribution plan.

The negative (deficit) balance in a partner's capital account is closed to zero Multiple choice question. only upon final resolution of the amount, if any, the partner will contribute to the partnership to offset the deficit capital balance. only if the partner makes a contribution to the partnership to offset the deficit capital balance. at the beginning of the partnership liquidation process.

only upon final resolution of the amount, if any, the partner will contribute to the partnership to offset the deficit capital balance.

The parties most interested in the financial information produced during a partnership liquidation are the partnership's Multiple choice question. suppliers and customers. partners and creditors. creditors and stockholders.

partners and creditors.

Receiving a statement of partnership liquidation on a frequent basis can be of value to Multiple choice question. the Internal Revenue Service (IRS). partners and partnership creditors. partners only.

partners and partnership creditors.

The amount of cash that can be safely distributed to partners at the beginning of a liquidation is determined by assuming that Multiple select question. creditors are willing to forego payment of amounts owed by the partnership. partners are personally insolvent. no cash will be received from selling noncash assets.

partners are personally insolvent. no cash will be received from selling noncash assets.

One reason why partners might decide to terminate their partnership is that Multiple select question. partners disagree over how the partnership should continue to operate. the partnership is not successful enough to adequately compensate partners for their time and capital investment. the partnership generates so much profit that the partners are concerned that the partnership may become a target for takeover by a larger company.

partners disagree over how the partnership should continue to operate. the partnership is not successful enough to adequately compensate partners for their time and capital investment.

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

partners' capital accounts.

Liquidation expenses are allocated to individual partners' capital accounts on the basis of Multiple choice question. partners' relative profit and loss ratios. each partner absorbing an equal amount. relative balances in partners' capital accounts.

partners' relative profit and loss ratios.

The ending balances in individual partners' capital accounts is the basis for allocating Multiple choice question. gains and losses on the sale of partnership assets. partnership cash that remains after payment of partnership liabilities. payment of partnership liabilities and payment of liquidation expenses.

partnership cash that remains after payment of partnership liabilities.

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

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

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 __________ plan.

predistribution

The document prepared by accountants at the start of a liquidation that will serve as a guide for all future payments of cash during the partnership liquidation is known as a Multiple choice question. final liquidation plan. predistribution plan. statement of future cash payments.

predistribution plan.

Gains and losses incurred from the sale of assets during a partnership liquidation are Multiple choice question. recognized as gains and losses that will be included in the determination of ending partnership net income. recognized as increases or decreases in the amount of outstanding partnership liabilities. recorded directly in partners' capital accounts rather than being recognized as gains and losses in net income.

recorded directly in partners' capital accounts rather than being recognized as gains and losses in net income.

After liquidating all partnership assets and paying partnership obligations, the final entry made in accounting for a partnership liquidation serves to Multiple choice question. reduce each partner's capital account to a zero balance. determine the ending amount of profit or loss earned by the partnership. transfer any remaining cash to those partners who wish to continue operating the business in a new partnership.

reduce each partner's capital account to a zero balance.

A partner's negative capital balance remains on the partnership's books until there is a final _________ of that partner's deficit.

resolution

The amount that can be distributed to an individual partner during the liquidation process while ensuring that partner has a safe capital balance can be referred to as a __________ payment.

safe

When liquidation of a partnership occurs over an extended length of time, the accountant can facilitate the distribution of cash in installments by calculating the __________ payments that can be made without running the risk that an individual partner will incur a deficit capital balance.

safe

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

safe

A safe payment is the amount that can be distributed to an individual partner during the liquidation process while ensuring that the partner's capital account maintains a Multiple choice question. safe balance. balance larger than the amount of the safe payment. positive balance.

safe balance.

The procedures involved in terminating and liquidating a partnership include Multiple choice question. using partnership cash to purchase financial investments for individual partners. transferring partnership assets to a new partnership formed by those partners who wish to continue in business together. selling partnership assets to convert them into cash.

selling partnership assets to convert them into cash.

A "liquidation made in installments" results in Multiple choice question. a single lump-sum distribution of cash to partners at the end of the liquidation process. exactly two payments of cash being made to partners, one at the beginning and one at the end of the liquidation process. several distributions of cash to partners during the liquidation process.

several distributions of cash to partners during the liquidation process.

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

subtracted from that partner's capital account.

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

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: Multiple choice question. that partner makes cash contributions to the other partners based on their profit and loss ratios. the other partners absorb that partner's negative capital balance. that partner makes a capital contribution to the partnership.

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

that partner's negative capital balance.

A predistribution plan indicates Multiple select question. the amount (or percentage) each partner receives in each distribution of cash that becomes available from the sale of noncash assets. the order in which partners receive cash as it becomes available from the sale of noncash assets. the change in each partner's capital account as each partner receives a distribution of cash from the sale of noncash assets.

the amount (or percentage) each partner receives in each distribution of cash that becomes available from the sale of noncash assets. the order in which partners receive cash as it becomes available from the sale of noncash assets.

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

the date of termination.

Angela, Barb, and Chris have decided to terminate their partnership. A $100,000 loss would reduce Angela's capital account balance to zero, an additional $50,000 loss would reduce Barb's capital account to zero, and a further $20,000 loss would reduce Chris's capital account to zero. As cash becomes available for distribution to partners, Multiple choice question. the first $20,000 should be paid to Chris. the first $20,000 should be paid to Angela. the first $100,000 should be paid to Angela. the first $100,000 should be paid to Chris.

the first $20,000 should be paid to Chris.

Any partnership cash remaining after the payment of partnership liabilities and liquidation expenses is distributed to individual partners based upon Multiple choice question. the partners' profit and loss ratios. each partner receiving an equal share of the cash distribution. the partners' ending capital account balances.

the partners' ending capital account balances.

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

the partnership is solvent.

In preparing a proposed schedule of liquidation, Multiple choice question. the simulated results from assumed future losses should be recorded before recording the results of transactions that have already occurred. the results of transactions that have already occurred should be recorded before recording the simulated results from assumed future losses. the simulated results from assumed future losses should be ignored.

the results of transactions that have already occurred should be recorded before recording the simulated results from assumed future losses.

Once all partners have begun to receive cash based on a predistribution plan, additional amounts of cash generated from the liquidation of noncash assets can be distributed to partners based on Multiple choice question. their current capital account balances. their original profit and loss ratios. the relative number of hours they spend working in the partnership.

their original profit and loss ratios.

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

total

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

total losses

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

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

The partner with the smallest "maximum loss that can be absorbed" is the partner Multiple choice question. who is most likely to receive cash from liquidation of the partnership. who is least likely to receive any cash from liquidation of the partnership. who will receive the greatest amount of cash from liquidation of the partnership.

who is least likely to receive any cash from liquidation of the partnership.

True or False: The proposed schedule of liquidation developed at the start of the liquidation can be used to determine the amount of cash to distribute to individual partners when partnership assets are sold on a piecemeal basis and cash is distributed to partners in installments.

False

True or false: In preparing a proposed schedule of liquidation assumed losses should be recorded before actual transactions.

False