Acctg 2 Quiz

Partnership Liquidation

1.

Which statement is correct in describing the rank order of payments? a. Payments to partners with loans to the partnership are ranked equally with payments to other creditors. b. Payments to partners with loans to the partnership are ranked ahead of payments to partners without loans to the partnership. c. Payments to other creditors are ranked ahead of payments to partners with loans to the partnership. d. After payments are made to other creditors and partners with loans to the partnership, payment can be made to partners with capital interests. 2.

Which of the following procedures is acceptable when accounting for a deficit balance in a partner’s capital account during partnership liquidation? a. A partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to zero. b. If a partner with a negative capital balance is personally insolvent, 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. c. If a partner with a negative capital balance is personally insolvent, 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. d. All the above procedures are acceptable.

3.

A partnership dissolution differs from a liquidation in that a. b. c. d.

4.

payments are made to creditors before partners receive value. periodic payments to partners are made when cash becomes available. a partner withdraws from the business and the enterprise continues to function. full payment is made to all outside creditors before remaining cash is distributed to partners in a final lump sum payment.

A partnership in liquidation has converted all assets into cash and paid all liabilities. The order of payment a. will have amounts due to partners with respect to their capital accounts take precedence over amounts owed by partners other than for capital and profits. b. will be according to the partners’ residual profit and loss sharing ratios. c. will have amounts owed by partners other than for capital and profits take precedence over amounts due to partners with respect to their capital accounts. d. Will be by any manner that is both reasonable and rational for the partnership.

5.

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

6.

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

Partnership Liquidation

7.

In a simple partnership liquidation, the last remaining cash distribution should be made according to the ratio of a. the individual partner’s profit and loss agreement. b. the individual partner's capital accounts, increased by partner loans to the partnership. c. the individual partner’s capital accounts, increased by partnership loans to the partners and decreased by partner loans to the partnership. d. the individual partner’s capital accounts, decreased by partnership loans to the partners and increased by partner loans to the partnership.

8.

In partnership liquidations, what are safe payments? a. The amounts of distributions that can be made to the partners, after all creditors have been paid in full. b. 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. c. The amounts of distributions that can be made to the partners, after all noncash assets have been adjusted to fair market value. d. All the above are examples of the safe payments concept.

9.

If all partners are included in the first installment of an installment liquidation, then in future installments a. cash will be distributed according to the residual profit and loss sharing ratio. b. cash should not be distributed until all non-cash assets are converted into cash. c. a safe payments schedule must be prepared before each cash distribution to avoid excessive payments to partners. d. a cash distribution plan must be prepared so that partners will know when they will be included in cash distributions.

10.

In a schedule of assumed loss absorptions a. b. c. d.

11.

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

Which partner is considered the most vulnerable as a result of a computation of vulnerability rankings? a. The partner with the lowest vulnerability ranking, who also has the lowest absorption potential. b. The partner with the lowest vulnerability ranking, who also has the highest absorption potential. c. The partner with the highest vulnerability ratio, who also has the lowest absorption potential. d. The partner with the highest vulnerability ranking, who also has the highest absorption potential.

12.

The rank order is for claims against a bankrupt partner of I. Those owing to partners by way of contribution II.Those owing to separate creditors III.Those owing to partnership creditors a. b. c. d.

II first; I second and III third. III first; II second and I third. I first; III second and II third. II first; III second and I third.

loss loss loss loss

Partnership Liquidation

13.

If conditions produce a debit balance in a partner’s capital account when liquidation losses are allocated a. b. c. d.

the partner receives further allocations of liquidation losses, but not gains. the partner receives no further allocation of liquidation losses and gains. the partner is no longer obligated to partnership creditors. the partner has an obligation of personal net assets to the other partners.

Use the following information for questions 14, 15 and 16. On June 30, 2006, the Warle, Xin, and Yates partnership had the following fiscal year-end balance sheet: Cash Accounts receivable Inventory Plant assets-net Loan to Warle Total assets

$

$

4,000 6,000 14,000 12,000 6,000 42,000

Accounts payable Loan from Xin Warle, capital(20%) Xin, capital(30%) Yates, capital(50%) Total liab./equity

$

$

7,000 5,000 14,000 10,000 6,000 42,000

The percentages shown are the residual profit and loss sharing ratios. The partners dissolved the partnership on July 1, 2006,. and began the liquidation process. During July the following events occurred: * Receivables of $3,000 were collected. * The inventory was sold for $4,000. * All available cash was distributed on July 31, except for $2,000 that was set aside for contingent expenses. 14.

The book value of the partnership capital on June 30, 2006 is a. b. c. d.

15.

The cash available for distribution to the partners on July 31, 2006 is a. b. c. d.

16.

$ 2,000. $ 4,000. $ 7,000. $11,000.

How much cash would Xin receive from the cash that is available for distribution on July 31? a. b. c. d.

17.

$60,000. $29,000. $30,000. $42,000.

$ 0. $ 600. $1,000. $2,000.

Hara, Ives, and Jack are in the process of liquidating their partnership. Since it may take several months to convert the other assets into cash, the partners agree to distribute all available cash immediately, except for $10,000 that is set aside for contingent expenses. The balance sheet and residual profit and loss sharing percentages are as follows:

Cash Other assets

$

400,000 200,000

Accounts payable Hara, capital (40%) Ives, capital (30%) Jack, capital (30%)

$

200,000 135,000 216,000 49,000

Partnership Liquidation

Total assets

$

600,000

Total liab./equity

$

600,000

How much cash should Ives receive in the first distribution? a. b. c. d. 18.

$146,000. $147,000. $153,000. $156,000

Jade, Kahl, and Lane are in the process of liquidating their partnership. Lane has agreed to accept the inventory, which has a fair value of $60,000, as part of her settlement. A balance sheet and the residual profit and loss sharing percentages are as follows:

Cash Inventory Plant assets

$

198,000 80,000 230,000

Accounts payable Jade, capital (40%) Kahl, capital (40%) Lane, capital (20%)

$

149,000 79,000 140,000 140,000

Total assets

$

508,000

Total liab./equity

$

508,000

If the partners then distribute the available cash, Lane will receive a. b. c. d. 19.

$23,000. $29,000 $30,000. $34,000.

The year-end balance sheet and residual profit and loss sharing percentages for the Lang, Maas, and Neal partnership on December 31, 2005, are as follows:

Cash Loan to Lang Other assets

$

30,000 40,000 480,000

Total assets

$

550,000

Accounts payable Loan from Maas Lang, capital (25%) Maas, capital (25%) Neal, capital (50%) Total liab./equity

$

$

200,000 50,000 70,000 80,000 150,000 550,000

The partners agree to liquidate the business and distribute cash when it becomes available. A cash distribution plan for the Lang, Maas, and Neal partnership will show that cash available, after outside creditors are paid, will initially go to a. b. c. d.

Lang in the amount of $20,000. Maas in the amount of $45,000. Maas in the amount of $55,000. Neal in the amount of $90,000.

Answers: C,C,A,C,D,B,A,B,A,C,A,D,D,B,A,D,B,A,C PSALM 145:14