Advance Accounting Study Guide Chapter 17

In a schedule of assumed loss absorptions the least vulnerable partner is eliminated first. the partner with lowest loss absorption is eliminated last. the most vulnerable partner is eliminated first. it is necessary to have a cash distribution plan first.

the most vulnerable partner is eliminated first.

Which statement is correct in describing the rank order of payments as specified by the Uniform Partnership Act? After payments are made to other creditors and partners with loans to the partnership, payment up to the same amount can be made to partners with capital interests. Payments to creditors other than partners are ranked ahead of payments to partners. Payments to partners are ranked equally, regardless of underlying basis. Payments to partners with excess capital balances may be placed ahead of payments to creditors.

Payments to creditors other than partners are ranked ahead of payments to partners.

In partnership liquidation, how are partner salary allocations treated? Salary allocations take precedence over creditor payments. Salary allocations take precedence over amounts due to partners with respect to their capital interests, but not profits. Salary allocations are disregarded. Salary allocations take precedence over amounts due to partners with respect to their capital profits, but not capital interests

Salary allocations are disregarded.

In partnership liquidations, what are safe payments? The amounts of distributions that can be made to the partners, after all creditors have been paid in full. The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership. The amounts of distributions that can be made to the partners, after all non-cash assets have been adjusted to fair market value. The amounts of distributions that can be made to the partners during the liquidation based on the partner's contributed capital return.

The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership.

What is the proper disposition of a partnership loan that was made from a partner who has a debit balance in the capital account? The loan is offset against the debit balance in the capital account. The loan is ignored in liquidation. The loan is charged off to the capital accounts of all the partners in their profit and loss sharing ratios. The loan is held for payment after all other capital accounts are covered.

The loan is offset against the debit balance in the capital account.

Which of the following procedures is acceptable when accounting for a deficit balance in a partner's capital account during partnership liquidation, if the partner with a negative capital balance is personally insolvent? The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to zero. The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to the same level of the other partners' capital accounts. The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to all the partners. The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to those partners having positive balances.

The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to those partners having positive balances.

Which partner is considered the most vulnerable as a result of a computation of vulnerability rankings? The partner who has the highest loss absorption potential The partner who has the lowest loss absorption potential The partner with the highest capital account balance The partner with the lowest capital account balance

The partner who has the lowest loss absorption potential

A cash distribution plan involves ranking the partners in terms of their vulnerability to possible losses. True False

True

A partnership is considered insolvent if the cash available after all noncash assets have been converted into cash is not enough to pay partnership creditors. True False

True

A partnership is solvent if enough resources exist to pay creditors and make a cash distribution to the partners. True False

True

If a partner has a debit capital balance at the time of liquidation, the partner may be required to use their personal funds to settle their partnership obligations. True False

True

If a partnership agreement does not specify the ratios for liquidation, the profit- and loss-sharing ratios are used. True False

True

The liquidation of a partnership is covered under Section 807 of the Uniform Partnership Act of 1997. True False

True

If all partners are included in the first installment of an installment liquidation, then in future installments cash should not be distributed until all non-cash assets are converted into cash. a cash distribution plan must be prepared so that partners will know when they will be included in cash distributions. cash will be distributed according to the residual profit and loss sharing ratios. vulnerability rankings for each partner should be prepared.

cash will be distributed according to the residual profit and loss sharing ratios.

Creditors of the partnership may seek the personal assets of the partners to satisfy amounts owed. When this happens creditors may only file against partnership assets. creditors must file against all partners and recover their claims based on the individual partner's percentage ownership. creditors may file against an individual partner to recover their claims, or against any combination of partners. creditors must file against all partners and recover their claims based on the individual partner's profit and loss distribution percentage.

creditors may file against an individual partner to recover their claims, or against any combination of partners

Gains and losses incurred at liquidation are distributed to the partners using the residual profit and loss sharing ratios because the residual profit and loss ratios represent the ownership percentages. using ownership percentages would permit solvent partners to not share profits with insolvent partners. using the established profit and loss sharing ratios is not permitted. these amounts represent profits and losses from prior periods that would have been shared using the residual profit and loss ratios.

these amounts represent profits and losses from prior periods that would have been shared using the residual profit and loss ratios.

Installment liquidation is the distribution of cash to partners as it becomes available during the liquidation period but after all liquidation gains and losses are realized. True False

False

Safe payments are based on the assumptions that all partners are personally solvent and all noncash assets represent possible losses. True False

False

When liquidating a partnership the first payment is to amounts due partners liquidating their capital balance. True False

False

Any distribution to partners prior to gains and losses being realized and recognized require approval of the majority of the partners. True False

False

A simple partnership liquidation requires periodic payments to partners as cash becomes available. only creditors to be paid in an orderly manner. partnership assets to be converted into cash with full payment made to all outside creditors before remaining cash is distributed to partners. periodic payments to creditors and partners determined by a safe payments schedule.

partnership assets to be converted into cash with full payment made to all outside creditors before remaining cash is distributed to partners.

If conditions produce a debit balance in a partner's capital account when liquidation losses are allocated, then the partner is no longer obligated to partnership creditors. the partner has an obligation of personal net assets to the other partners. the partner receives further allocations of liquidation gains, but not losses. the partner receives further allocations of liquidation losses, but not gains.

the partner has an obligation of personal net assets to the other partners.