Chapter 15

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

not receive any cash distribution from the partnership liquidation.

A partner's safe capital balance is the amount

that must remain in that partner's capital account to absorb any future losses.

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.

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

all of the other partners absorb the loss.

Select all that apply A statement of partnership liquidation should include several columns of information that show changes in

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

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

predistribution plan.

The earliest date at which some partnership cash can be distributed to partners is

the date of termination.

The procedures involved in terminating and liquidating a partnership include

distributing partnership cash to individual partners after partnership liabilities and liquidation expenses have been paid. selling partnership assets to convert them into cash.

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

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

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 their capital accounts.

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

subtracted from that partner's capital account.

When a partner has a negative capital balance, but is personally solvent,

that partner makes a capital contribution to the partnership.

Some amount of partnership cash can be safely distributed to partners at the date of partnership termination if

the partnership is solvent.

Gains and losses on the sale of assets during a partnership liquidation are recorded directly in partners' capital accounts

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

total losses.

Only those partners with a capital balance that is large enough to absorb all possible future (1) will receive cash in a preliminary distribution of partnership assets.

1. losses

Dividing a partner's capital balance by their profit and loss allocation determines that partner's (1) loss that can be absorbed.

1. 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 (1) plan.

1. predistribution

When making distributions of cash to partners during the liquidation process, the accountant must ensure that each partner has a (1) capital balance, which is the minimum amount that a partner must retain in their capital account to be able to absorb future losses.

1. safe

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

70% of liquidation expenses.

The maximum amount of loss that can be absorbed by an individual partner is calculated

by dividing the partner's capital balance by their profit and loss allocation.

A statement of partnership liquidation discloses

liquidation transactions already carried out.

During a partnership liquidation, debits are made to individual partners' capital accounts to recognize each partner's share of

losses on sales of partnership assets.

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 profit and loss ratios.

Gains on sales of partnership assets are allocated to individual partners' capital accounts based on

partners' relative profit and loss ratios.

Liquidation expenses are allocated to individual partners' capital accounts on the basis of

partners' relative profit and loss ratios.

Select all that apply A statement of partnership liquidation discloses

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

In addition to accounting for the transactions that occur during a partnership liquidation, the partnership's accountant should work to ensure the (1) treatment of all parties involved in the liquidation.

1. equitable

A proposed schedule of liquidation is based on the assumption that all future partnership transactions will result in (1) losses.

1. total

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

60% of losses on sales of partnership assets.

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

80%.

A statement of partnership liquidation reports updated balances in the partnership's assets, liabilities, and

partners' capital accounts.

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 absorb all possible future losses.

The partner with the smallest "maximum loss that can be absorbed" is the partner

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

During a partnership liquidation, credits are made to individual partners' capital accounts to recognize each partner's share of

gains on sales of partnership assets.

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

45% of gains on sales of partnership assets.

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,

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

A partner with a negative capital balance should make a contribution to the partnership in an amount equal to

that partner's negative capital balance.

Select all that apply Partners' relative profit and loss ratios are used as the basis for allocating

gains on sales of assets to partners' capital accounts. liquidation expenses to partners' capital accounts.

In preparing a proposed schedule of liquidation, the accountant assumes that liquidation expenses will be the

maximum amount in the range of probable future expenses.

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.

Select all that apply The procedures involved in terminating and liquidating a partnership include

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.

Select all that apply In addition to accounting for the transactions that transpire during a partnership liquidation, the partnership's accountant

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.

Preparation of a proposed schedule of liquidation is based on the assumption any partner with a deficit capital balance will

not make any cash contribution to the partnership to cover their deficit.

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

True

A statement of partnership liquidation reports updated balances in the partnership's assets, liabilities, and capital accounts

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

based on their relative profit and loss ratios.

Preparation of a proposed schedule of liquidation is based on the assumption that the partnership's noncash assets

cannot be sold for cash.