Package Title: Test Bank Questions

Course Title: Advanced Accounting, 6e

Chapter Number: 16

Question Type: Multiple Choice

1) Which of the following statements is correct?

a) Personal creditors have first claim on partnership assets.

b) Partnership creditors have first claim on partnership assets.

c) Partnership creditors have first claim on personal assets.

d) Partnership creditors have first claim on partnership assets; and partnership creditors have first claim on personal assets.

Question Title: Test Bank (Multiple Choice) Question 01

Difficulty: Easy

Learning Objective: 2 List the order of priority for each class of creditors in partnership liquidation under the UPA.

Section Reference: 16.2

2) The first step in the liquidation process is to:

a) convert noncash assets into cash.

b) pay partnership creditors

c) compute any net income (loss) up to the date of dissolution.

d) allocate any gains or losses to the partners.

Question Title: Test Bank (Multiple Choice) Question 02

Difficulty: Easy

Learning Objective: 1 Describe the steps used to distribute available partnership assets in liquidation under the Uniform Partnership Act (UPA).

Section Reference: 16.1

3) A schedule prepared each time cash is to be distributed is called a(n) :

a) advance cash distribution schedule.

b) marshaling of assets schedule.

c) loss absorption potential schedule.

d) safe payment schedule.

Question Title: Test Bank (Multiple Choice) Question 03

Difficulty: Easy

Learning Objective: 4 Prepare a “safe payment approach” liquidation schedule.

Section Reference: 16.4

4) An advance cash distribution plan is prepared:

a) each time cash is distributed to partners in an installment liquidation.

b) each time a partnership asset is sold in an installment liquidation.

c) to determine the order and amount of cash each partner will receive as it becomes available for distribution.

d) none of these.

Question Title: Test Bank (Multiple Choice) Question 04

Difficulty: Medium

Learning Objective: 4 Prepare a “safe payment approach” liquidation schedule., 5 Describe the four steps in the preparation of an advance plan for the distribution of cash in a partnership liquidation.

Section Reference: 16.4

5) The first step in preparing an advance cash distribution plan is to:

a) determine the order in which partners are to participate in cash distributions.

b) compute the amount of cash each partner is to receive as it becomes available for distribution.

c) allocate any gains (losses) to the partners in their profit-sharing ratio.

d) determine the net capital interest of each partner.

Question Title: Test Bank (Multiple Choice) Question 05

Difficulty: Medium

Learning Objective: 4 Prepare a “safe payment approach” liquidation schedule., 5 Describe the four steps in the preparation of an advance plan for the distribution of cash in a partnership liquidation.

Section Reference: 16.4

6) Offsetting a partner's loan balance against his debit capital balance is referred to as the:

a) marshaling of assets.

b) right of offset.

c) allocation of assets.

d) liquidation of assets.

Question Title: Test Bank (Multiple Choice) Question 06

Difficulty: Easy

Learning Objective: 1 Describe the steps used to distribute available partnership assets in liquidation under the Uniform Partnership Act (UPA).

Section Reference: 16.1

7) If a partner with a debit capital balance during liquidation is personally solvent, the:

a) partner must invest additional assets in the partnership.

b) partner's debit balance will be allocated to the other partners.

c) other partners will give the partner enough cash to absorb the debit balance.

d) partnership will loan the partner enough cash to absorb the debit balance.

Question Title: Test Bank (Multiple Choice) Question 07

Difficulty: Easy

Learning Objective: 2 List the order of priority for each class of creditors in partnership liquidation under the UPA.

Section Reference: 16.2, 16.3

8) Shrek, Donkey, and Fiona are partners in SDF and share profits and losses in the ratio of 5:3:2, respectively. The partnership has cash of $10,000 and noncash assets of $90,000 when they decide to liquidate. Liabilities at the time of liquidation are $40,000, including a note payable to Fiona of $5,000. The partner capital accounts are Shrek $40,000, Donkey $ 15,000 and Fiona $5,000. The non-cash assets of the partnership were sold for $26,000. The liabilities other than the note payable to Fiona are paid. Fiona is personally insolvent. Shrek and Donkey are not insolvent. Under the circumstances:

a) Shrek will receive a distribution in liquidation of $8,000.

b) Fiona will be required to contribute $2,800 to the partnership.

c) Shrek will receive a distribution in liquidation of $6,250.

d) Donkey will be required to contribute $4,200 to the partnership.

Question Title: Test Bank (Multiple Choice) Question 08

Difficulty: Hard

Learning Objective: 2 List the order of priority for each class of creditors in partnership liquidation under the UPA., 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

9) The partnership of Larry, Moe, and Curly shares profits and losses 60%, 30%, and 10%, respectively. On January 1, 2017, the partners voted to dissolve the partnership, at which time the assets, liabilities, and capital balances were as follows:

All of the partners are personally insolvent.

Assume that all noncash assets are sold for $840,000 and all available cash is distributed in final liquidation of the partnership. Cash should be distributed to the partners as follows:

a) Larry, $744,000; Moe, $372,000; Curly, $124,000.

b) Larry, $440,000; Moe, $380,000; Curly, $200,000.

c) Larry, $224,000; Moe, $272,000; Curly, $164,000.

d) Larry, $396,000; Moe, $198,000; Curly, $66,000.

Question Title: Test Bank (Multiple Choice) Question 09

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

10) The partnership of Peter, Paul, and Mary share profits and losses in the ratio of 4:4:2, respectively. The partners voted to dissolve the partnership when its assets, liabilities, and capital were as follows:

The partnership will be liquidated over a prolonged period of time. As cash is available, it will be distributed to the partners. The first sale of noncash assets having a book value of $600,000 realized $475,000. How much cash should be distributed to each partner after this sale?

a) Peter, $90,000; Paul, $140,000; Mary, $295,000

b) Peter, $210,000; Paul, $290,000; Mary, $145,000

c) Peter, $290,000; Paul, $210,000; Mary, $105,000

d) Peter, $150,000; Paul, $175,000; Mary, $200,000

Question Title: Test Bank (Multiple Choice) Question 10

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

11) In a partnership liquidation the final cash distribution to the partners should be made in accordance with the:

a) partners' profit and loss sharing ratio.

b) balances of the partners' capital accounts.

c) ratio of the capital contributions by the partners.

d) ratio of capital contributions less withdrawals by the partners.

Question Title: Test Bank (Multiple Choice) Question 11

Difficulty: Easy

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

12) In an advance plan for installment distributions of cash to partners of a liquidating partnership, each partner's loss absorption potential is computed by:

a) dividing each partner's capital account balance by the percentage of that partner's capital account balance to total partners' capital.

b) multiplying each partner's capital account balance by the percentage of that partner's capital account balance to total partners' capital.

c) dividing the total of each partner's capital account less receivables from the partner plus payables to the partner by the partner's profit and loss percentage.

d) some other method.

Question Title: Test Bank (Multiple Choice) Question 12

Difficulty: Medium

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

13) Under the Uniform Partnership Act:

a) partnership creditors have first claim (Rank I) against the assets of an insolvent partnership.

b) personal creditors of an individual partner have first claim (Rank I) against the personal assets of all partners.

c) partners with credit capital balances share (Rank I) the personal assets of an insolvent partner that has a debit capital balance with personal creditors of that partner.

d) personal creditors of the partners of an insolvent partnership share partnership assets on a pro rata basis (Rank I) with partnership creditors.

Question Title: Test Bank (Multiple Choice) Question 13

Difficulty: Easy

Learning Objective: 2 List the order of priority for each class of creditors in partnership liquidation under the UPA.

Section Reference: 16.2

14) During the liquidation of the partnership of Karr, Rice, and Long. Karr accepts, in partial settlement of his interest, a machine with a cost to the partnership of $150,000, accumulated depreciation of $70,000, and a current fair value of $110,000. The partners share net income and loss equally. The net debit to Karr's account (including any gain or loss on disposal of the machine) is:

a) $90,000.

b) $100,000.

c) $110,000.

d) $150,000.

Question Title: Test Bank (Multiple Choice) Question 14

Difficulty: Medium

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

15) X, Y, and Z have capital balances of $90,000, $60,000, and $30,000, respectively. Profits are allocated 35% to X, 35% to Y, and 30% to Z. The partners have decided to dissolve and liquidate the partnership. After paying all creditors, the amount available for distribution is $60,000. X, Y, and Z are all personally solvent. Under the circumstances, Z will:

a) receive $18,000.

b) receive $30,000.

c) personally have to contribute an additional $6,000.

d) personally have to contribute an additional $36,000.

Question Title: Test Bank (Multiple Choice) Question 15

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

16) The ABC partnership has the following capital accounts on its books at December 31, 2017:

All liabilities have been liquidated and the cash balance is zero. None of the partners have personal assets in excess of his personal liabilities. The partners share profits and losses in the ratio of 3:2:5. If the noncash assets are sold for $400,000, the partners should receive as a final payment:

a) A, $304,000; B, $176,000; C, $80,000

b) A, $256,000; B, $144,000; C, $-0-

c) A, $304,000; B, $176,000; C, $-0-

d) A, $120,000; B, $80,000; C, $200,000

Question Title: Test Bank (Multiple Choice) Question 16

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

17) The summarized balances of the accounts of MNO partnership on December 31, 2017, are as follows:

The agreed upon profit/loss ratio is 50:40:10, respectively. Using the information given above, which one of the following amounts, if any, is the loss absorption potential of partner N as of December 31, 2017?

a) $20,000

b) $35,000

c) $75,000

d) $120,000

Question Title: Test Bank (Multiple Choice) Question 17

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

18) Gilligan, Skipper, and Professor are partners with a profit and loss ratio of 4:3:3. The partnership was liquidated and, prior to the liquidation process, the partnership balance sheet was as follows:

After the partnership was liquidated and the cash was distributed, Skipper received $96,000 in cash in full settlement of his interest.

The liquidation loss must have been:

a) $360,000

b) $144,000

c) $504,000

d) $480,000

Question Title: Test Bank (Multiple Choice) Question 18

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

19) The partnership of Mick, Keith, and Charlie has been dissolved and is in the process of liquidation. On July 1, 2017, just before the second cash distribution, the assets and equities of the partnership along with residual profit sharing ratios were as follows:

Assume that the available cash is distributed immediately, except for a $25,000 contingency fund that is withheld pending complete liquidation of the partnership. How much cash should be paid to each of the partners?

a) Mick, $87,500; Keith, $52,500; Charlie, $35,000

b) Mick 12,500; Keith , 7,500; Charlie, 10,000

c) Mick - 0 -; Keith, 25,000; Charlie, - 0 -

d) Mick - 0 -; Keith, 15,000; Charlie, 10,000

Question Title: Test Bank (Multiple Choice) Question 19

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

20) The partnership of Mick, Keith, and Charlie has been dissolved and is in the process of liquidation. On July 1, 2017, just before the second cash distribution, the assets and equities of the partnership along with residual profit sharing ratios were as follows:

Assume that Mick takes equipment with a fair value of $40,000 and a book value of $50,000 in partial satisfaction of his equity in the partnership. If all the $200,000 cash is then distributed, the partners should receive:

a) Mick, $100,000; Keith, $60,000; Charlie, $40,000

b) Mick, 25,000; Keith, 15,000; Charlie, 10,000

c) Mick, - 0; Keith, 45,000; Charlie, 5,000

d) - 0; Keith, 50,000; Charlie, - 0

Question Title: Test Bank (Multiple Choice) Question 20

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

21) The partnership of Homer, Marge, and Bart share profits and losses in the ratio of 4:4:2, respectively. The partners voted to dissolve the partnership when its assets, liabilities, and capital were as follows:

The partnership will be liquidated over a prolonged period of time. As cash is available, it will be distributed to the partners. The first sale of noncash assets having a book value of $360,000 realized $285,000. How much cash should be distributed to each partner after this sale?

a) Homer, $54,000; Marge, $84,000; Bart, $177,000.

b) Homer, $174,000; Marge, $174,000; Bart, $87,000.

c) Homer, $126,000; Marge, $126,000; Bart, $63,000.

d) Homer, $90,000; Marge, $105,000; Bart, $120,000.

Question Title: Test Bank (Multiple Choice) Question 21

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets., 4 Prepare a “safe payment approach” liquidation schedule., 5 Describe the four steps in the preparation of an advance plan for the distribution of cash in a partnership liquidation.

Section Reference: 15.3, 15.4

22) A, B, and C have capital balances of $80,000, $80,000, and $40,000, respectively. Profits are allocated 40% to A, 40% to B and 20% to C. The partners have decided to dissolve and liquidate the partnership. After paying all creditors the amount available for distribution is $20,000. A, and B are personally solvent. C is personally insolvent. Under the circumstances, A and B will each:

a) receive $10,000.

b) receive $9,000.

c) receive $8,000.

d) receive $6,000.

Question Title: Test Bank (Multiple Choice) Question 22

Difficulty: Medium

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

23) The ABC partnership has the following capital accounts on its books at December 31, 2017:

All liabilities have been liquidated and the cash balance is zero. None of the partners have personal assets in excess of his personal liabilities. The partners share profits and losses in the ratio of 3:2:5. If the noncash assets are sold for $150,000, the partners should receive as a final payment:

a) A, $152,000; B, $88,000 C, $40,000

b) A, $128,000; B, $72,000; C, $ - 0 -

c) A, $152,000; B, $88,000; C, $ - 0 -

d) A, $60,000; B, $40,000; C, $100,000

Question Title: Test Bank (Multiple Choice) Question 23

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

24) The summarized balances of the accounts of RST partnership on December 31, 2017, are as follows:

The agreed upon profit/loss ratio is 50:40:10, respectively. Using the information given above, which one of the following amounts, if any, is the loss absorption potential of partner S as of December 31, 2017?

a) $60,000

b) $70,000

c) $150,000

d) $240,000

Question Title: Test Bank (Multiple Choice) Question 24

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

25) The partnership of Stan, Kenney, and Cartman has been dissolved and is in the process of liquidation. On July 1, 2017, just before the second cash distribution, the assets and equities of the partnership along with residual profit sharing ratios were as follows:

Assume that the available cash is distributed immediately, except for a $10,000 contingency fund that is withheld pending complete liquidation of the partnership. How much cash should be paid to each of the partners?

a) Stan, $35,000; Kenney, $21,000; Cartman, $14,000

b) Stan, $5,000; Kenney, $3,000; Cartman, $4,000

c) Stan, $0; Kenney, $10,000; Cartman, $0

d) Stan, $0; Kenney, $6,000; Cartman, $4,000

Question Title: Test Bank (Multiple Choice) Question 25

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

Question Type: Essay

26) The Uniform Partnership Act specifies specific steps in distributing available partnership assets in liquidation. Describe the steps used to distribute partnership assets during the liquidation process.

Question Title: Test Bank (Essay) Question 26

Difficulty: Easy

Learning Objective: 1 Describe the steps used to distribute available partnership assets in liquidation under the Uniform Partnership Act (UPA).

Section Reference: 16.1

27) An advance cash distribution plan specifies the order in which each partner will receive cash and the dollar amount each will receive as it becomes available for distribution. Identify the four steps in the preparation of an advance cash distribution plan.

• Determine the net capital interest of each partner by combining partners’ capital accounts with any loans to or receivables from the partners.
• Determine the order in which the partners are to participate in cash distributions.
• Compute the amount of cash each partner is to receive as it becomes available for distribution.
• Prepare the cash distribution plan.

Question Title: Test Bank (Essay) Question 27

Difficulty: Medium

Learning Objective: 4 Prepare a “safe payment approach” liquidation schedule., 5 Describe the four steps in the preparation of an advance plan for the distribution of cash in a partnership liquidation.

Section Reference: 16.4

28) The NOR Partnership is being liquidated. A balance sheet prepared prior to liquidation is presented below:

Assets Liabilities & Equities

Cash $240,000 Liabilities $ 160,000

Other Assets 300,000 Rice, Loan 60,000

Nutt, Capital 180,000

Ohm, Capital 60,000

Rice, Capital 80,000

Total Assets $540,000 Total Equities $540,000

Nutt, Ohm, and Rice share profits and losses in a 40:40:20 ratio. All partners are personally insolvent.

Required:

A. Prepare the journal entries necessary to record the distribution of the available cash.

B. Prepare the journal entries necessary to record the completion of the liquidation process, assuming the other assets are sold for $120,000.

A. Nutt Ohm Rice_

Net interest $(180,000) $(60,000) $(140,000)

Potential loss–$300,000 120,000 120,000 60,000

(60,000) 60,000 (80,000)

Potential loss–$60,000 40,000 (60,000) 20,000

Cash distribution $(20,000) $ -0- $(60,000)

Liabilities 160,000

Cash 160,000

Rice, Loan 60,000

Nutt, Capital 20,000

Cash 80,000

B.

Cash 120,000

Nutt, Capital ($180,000 × .40) 72,000

Ohm, Capital ($180,000 × .40) 72,000

Rice, Capital ($180,000 × .20) 36,000

Other Assets 300,000

Nutt, Capital ($12,000 × [40/60]) 8,000

Rice, Capital ($12,000 × [20/60]) 4,000

Ohm, Capital ($72,000 - $60,000) 12,000

Nutt, Capital 80,000

Rice, Capital 40,000

Cash 120,000

Question Title: Test Bank (Problem) Question 16-1

Difficulty: Medium

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

29) The trial balance for the ABC Partnership is as follows just before liquidation:

OTHER BALL ADLER BALL CARL

CASH ASSETS RECEIVABLE = LIABILITIES CAPITAL CAPITAL CAPITAL

180,000 625,000 90,000 150,000 420,000 270,000 180,000

Partners share profits a 50:30:20 ratio.

Required:

Prepare an advance cash distribution plan showing how available cash would be distributed.

__Alder__ __Bell__ __Cone__

Net capital interest $420,000 $180,000 $180,000

Profit-loss ratio / .50 / .30 / .20

Loss absorption potential $840,000 $600,000 $900,000

Order of cash distribution 2 3 1

Loss Absorption Potential

Alder Bell Cone

Profit-Loss Ratio .50 .30 .20

Loss absorption potential $840,000 $600,000 $900,000

Distribution to Cole 60,000

Balances after distribution 840,000 600,000 840,000

Distribution to Adams & Cole 240,000 240,000

Balances after distribution $600,000 $600,000 $600,000

Asset Distribution

Alder Bell Cone

Profit-Loss Ratio .50 .30 .20

Net capital interest $420,000 $180,000 $180,000

Distribution to Cole 12,000

Balances after distribution 420,000 180,000 168,000

Distribution to Adams & Cole _120,000 _ 48,000

Balances after distribution $300,000 $180,000 $120,000

Remainder of asset distributions .50 .30 .20

Cash Distribution Plan

Alder Bell Cone

Order of Cash Distribution Liabilities .5 .3 .2

1. First $150,000 100%

2. Next $12,000 100%

3. Next $168,000 71% 29%

4. Remainder 50% 30% 20%

Question Title: Test Bank (Problem) Question 16-2

Difficulty: Hard

Learning Objective: 4 Prepare a “safe payment approach” liquidation schedule., 5 Describe the four steps in the preparation of an advance plan for the distribution of cash in a partnership liquidation.

Section Reference: 16.4

30) Lennon, Newman, and Ott operate the LNO Partnership. The partnership agreement provides that the partners share profits in the ratio of 40:40:20, respectively. Unable to satisfy the firm's debts, the partners decide to liquidate. Account balances just prior to the start of the liquidation process are as follows:

Debit Credit

Cash $ 90,000

Other Assets 330,000

Liabilities $165,000

Ott, Loan 36,000

Lennon, Capital 165,000

Newman, Capital 36,000

Ott, Capital 39,000

Ott, Drawing 21,000 _______

Totals $441,000 $441,000

During the first month of liquidation, other assets with a book value of $150,000 are sold for $165,000, and creditors are paid. In the following month unrecorded liabilities of $12,000 are discovered and assets carried on the books at a cost of $90,000 are sold for $36,000. During the third month the remaining other assets are sold for $42,000 and all available cash is distributed.

Required:

Prepare a schedule of partnership realization and liquidation. A safe distribution of cash is to be made at the end of the second and third months. The partners agreed to hold $30,000 in cash in reserve to provide for possible liquidation expenses and/or unrecorded liabilities. All of the partners are personally insolvent.

Cash Assets = Liabilities

Balances 90,000 330,000 = (165,000)

Sale of assets 165,000 (150,000)

255,000 180,000 = (165,000)

Distribute cash to creditors (165,000) 165,000

90,000 180,000 = -0-

Record liabilities (12,000)

90,000 180,000 = (12,000)

Sale of assets 36,000 (90,000)

126,000 90,000 (12,000)

Distribute cash (96,000) 12,000

30,000 90,000 -0-

Sale of assets 42,000 (90,000)

72,000 -0- -0-

Allocate Newman's deficit

72,000 -0- -0-

Distribute cash (72,000)

Balances -0- -0- -0-__

Capital Interest

Lennon Newman = Ohm

Balances (165,000) (36,000) = (54,000)

Sale of assets (6,000) (6,000) (3,000)

(171,000) (42,000) = (57,000)

Distribute cash to creditors

(171,000) (42,000) = (57,000)

Record liabilities 4,800 4,800 2,400

(166,200) (37,200) = (54,600)

Sale of assets 21,600 21,600 10,800

(144,600) (15,600) (43,800)

Distribute cash 75,000 9,000

(69,600) (15,600) (34,800)

Sale of assets 19,200 19,200 9,600

(50,400) 3,600 (25,200)

Allocate Newman's deficit 2,400 (3,600) 1,200

(48,000) -0- (24,000)

Distribute cash 48,000 24,000

Balances -0- -0- -0-

Lennon Newman Ohm

Capital interest (144,600) (15,600) (43,800)

Potential loss plus

cash reserve (120,000) 48,000 48,000 32,000

(96,600) 32,400 (19,800)

Allocate potential deficit (2/3) 14,400 (21,600) (1/3) 10,800

Cash distribution (75,000) -0- ( 9,000)

Question Title: Test Bank (Problem) Question 16-3

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets., 4 Prepare a “safe payment approach” liquidation schedule., 5 Describe the four steps in the preparation of an advance plan for the distribution of cash in a partnership liquidation.

Section Reference: 16.3, 16.4

31) Due to the fact that the partnership had been unprofitable for the past several years, A, B, C, and D decided to liquidate their partnership. The partners share profits and losses in the ratio of 40:30:20:10, respectively. The following balance sheet was prepared immediately before the liquidation process began:

A B C D Partnership

Balance Sheet

Cash $ 100,000 Liabilities $250,000

Other Assets 350,000 A, Capital 55,000

B, Capital 60,000

C, Capital 50,000

D, Capital 35,000

Total Assets $450,000 Total Lia & Equities $450,000

The personal status of each partner is as follows:

Personal Personal

_Assets_ Liabilities

A $165,000 $ 120,000

B 100,000 140,000

C 180,000 160,000

D 60,000 70,000

The partnership's other assets are sold for $100,000 cash. The partnership operates in a state which has adopted the Uniform Partnership Act.

Required:

A. Complete the following schedule of partnership realization and liquidation. Assume that a partner makes additional contributions to the partnership when appropriate based on their individual status.

OTHER CAPITAL

CASH ASSETS LIABILITIES __A__ __B__ __C__ __D__

$100,000 $350,000 $250,000 55,000 60,000 50,000 35,000

B. Complete the following schedule to show the total amount that will be paid to the personal creditors.

From Distribution Total Paid

Personal from to Personal

_Assets_ _Partnership_ _Creditors_

A

B

C

D

A.

Other

Cash Assets = Liabilities

Account Balances 100,000 350,000 = (250,000)

Sale of Assets 100,000 (350,000)

200,000 -0- = (250,000)

Allocated Debit

Balance of B* 200,000 -0- = (250,000)

Investment from C 10,000

Investment from A 45,000

255,000 -0- (250,000)

Distribute Cash (255,000) 250,000

-0- -0- -0-

Capital

A B C D

.4 .3 .2 .1

Account Balances (55,000) (60,000) (50,000) (35,000)

Sale of Assets 100,000 75,000 50,000 25,000

45,000 15,000 -0- (10,000)

Allocate Debit

Balance of B* (15,000) 10,000 5,000

45,000 -0- 10,000 (5,000)

Investment from C (10,000)

Investment from A (45,000)

-0- -0- -0- (5,000)

Distribute Cash 5,000

-0- -0- -0- -0-

*Allocate only to C and D, since A is able to contribute only $45,000 from personal assets.

B. From Distribution Total Paid

Personal from to Personal

Assets Partnership Creditors

A 120,000 120,000

B 100,000 100,000

C 160,000 160,000

D 60,000 5,000 65,000

Question Title: Test Bank (Problem) Question 16-4

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

32) A trial balance for the DEF partnership just prior to liquidation is given below:

Debit Credit

Cash $ 75,000

Noncash Assets 750,000

Nonpartner Liabilities $240,000

Dugan, Loan 75,000

Dugan, Capital 225,000

Elston, Capital 153,000

Flynn, Capital 132,000

Totals $825,000 $825,000

The partners share income and loss on the following basis:

Dugan 50%

Elston 30%

Flynn 20%

Required:

Prepare an advance cash distribution plan for the partners.

Dugan Elston Flynn

Capital balances $225,000 $153,000 $132,000

Loan balances 75,000

Net capital interest 300,000 153,000 132,000

Profit and loss ratio / .5 / .3 / .2

Loss absorption potential $600,000 $510,000 $660,000

Order of cash distribution 2 3 1

Loss Absorption Potential Asset Distribution

Dugan Elston Flynn Dugan Elston Flynn

Profit & loss ratio .5 .3 .2 .5 .3 .2

Loss absorption

potential $600,000 $510,000 $660,000

Net cap. interest $300,000 $153,000 $132,000

Distrib. to Flynn 60,000

(60,000 × .2) 12,000

600,000 510,000 600,000 300,000 153,000 120,000

Distrib. to Dugan

and Flynn 90,000 90,000

(90,000 × .2) 18,000

(90,000 × .5) 45,000

$510,000 $510,000 $510,000 $255,000 $153,000 $102,000

Remainder .5 .3 .2

Cash Distribution Plan

Order of cash distribution after creditors have been paid:

Dugan Elston Flynn

First $12,000 100%

Next $63,000 5/7 2/7

Remainder 50% 30% 20%

Question Title: Test Bank (Problem) Question 16-5

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets., 4 Prepare a “safe payment approach” liquidation schedule., 5 Describe the four steps in the preparation of an advance plan for the distribution of cash in a partnership liquidation.

Section Reference: 16.3, 16.4

33) David, Paul, and Burt are partners in a CPA firm sharing profits and losses in a ratio of 2:2:3, respectively. Immediately prior to liquidation, the following balance sheet was prepared:

Assets Liabilities & Equities

Cash $ 100,000 Liabilities $280,000

Noncash assets 580,000 David, Capital 160,000

Paul, Capital 160,000

_______ Burt, Capital 80,000

Total Assets $680,000 Total Liabilities & Equities $680,000

Required:

Assuming the noncash assets are sold for $300,000, determine the amount of cash to be distributed to each partner. Complete the worksheet and clearly indicate the amount of cash to be distributed to each partner in the spaces provided. No cash is available from any of the three partners.

Noncash David Paul Burt

Cash Assets Liabilities Capital Capital Capital

Beginning Bal. 100,000 580,000 280,000 160,000 160,000 80,000

Noncash David Paul Burt

Cash Assets Liabilities Capital Capital Capital

Beginning Balance 100,000 580,000 280,000 160,000 160,000 80,000

Sale of Assets 300,000 (580,000) (80,000) (80,000) (120,000

Balances 400,000 -0- 280,000 80,000 80,000 (40,000)

Pay Liabilities (280,000) (280,000)

Balances 120,000 -0- -0- 80,000 80,000 (40,000)

Allocate deficit (20,000) (20,000) 40,000

Balances 120,000 -0- -0- 60,000 60,000 -0-

Cash payment to partners (120,000) (60,000) (60,000)

Balances -0- -0- -0- -0- -0- -0-

Question Title: Test Bank (Problem) Question 16-6

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

34) David, Paul, and Burt are partners in a CPA firm sharing profits and losses in a ratio of 2:2:3, respectively. Immediately prior to liquidation, the following balance sheet was prepared:

Assets Liabilities & Equities

Cash $ 100,000 Liabilities $280,000

Noncash assets 580,000 David, Capital 160,000

Paul, Capital 160,000

_______ Burt, Capital 80,000

Total Assets $680,000 Total Liabilities & Equities $680,000

Required:

Assuming the noncash assets are sold for $160,000, determine the amount of cash to be distributed to each partner assuming all partners are personally solvent. Complete the worksheet and clearly indicate the amount of cash to be distributed to each partner in the spaces provided.

Noncash David Paul Burt

Cash Assets Liabilities Capital Capital Capital

Beginning Bal. 100,000 580,000 280,000 160,000 160,000 80,000

Noncash David Paul Burt

Cash Assets Liabilities Capital Capital Capital

Beginning Balance 100,000 580,000 280,000 160,000 160,000 80,000

Sale of Assets 160,000 (580,000) (120,000) (120,000) (180,000)

Balances 260,000 -0- 280,000 40,000 40,000 (100,000)

Cash payment from Burt 100,000 100,000

Balances 360,000 -0- 280,000 40,000 40,000 -0-

Pay Liabilities (280,000) (280,000)

Balances 80,000 -0- -0- 40,000 40,000 -0-

Cash payment to partners (80,000) (40,000) (40,000)

Balances -0- -0- -0- -0- -0- -0-

Question Title: Test Bank (Problem) Question 16-7

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets.

Section Reference: 16.3

35) The December 31, 2016, balance sheet of the Deng, Danielson, and Gibson partnership, along with the partners’ residual profit and loss sharing ratios, is summarized as follows:

Assets Liabilities & Equities

Cash $ 150,000 Accounts Payable $ 225,000

Receivables 300,000 Loan from Danielson 50,000

Inventories 375,000 Deng, Capital (20%) 250,000

Other Assets 475,000 Danielson, Capital (30%) 400,000

Gibson, Capital (50%) 375,000

Total Assets $1,300,000 Total Lia & Equities $1,300,000

The partners agree to liquidate their partnership as soon as possible after January 1, 2017 and to distribute all cash as it becomes available.

Required:

Prepare an advance cash distribution plan to show how cash will be distributed as it becomes available.

Deng Danielson Gibson

Net capital interest $250,000 $450,000 $375,000

Profit/Loss ratio / .20 / .30 / .50

Loss absorption potential $1,250,000 $1,500,000 $750,000

Order of cash distribution 2 1 3

Loss Absorption Potential

Deng Danielson Gibson

Loss absorption potential $1,250,000 $1,500,000 $750,000

Distribution to Danielson (250,000) ________ ________

Balances $1,250,000 $1,250,000 $750,000

Distribution to Deng & Danielson (500,000) (500,000) _ ______

Balances $750,000 $ 750,000 $750,000

Asset Distribution

Deng Danielson Gibson

Net capital interest $250,000 $450,000 $375,000

Distribution to Danielson __75,000 ___ ___

Balances 250,000 375,000 375,000

Distribution to Deng & Danielson (100,000) (150,000) _______

Balances $150,000 $225,000 $375,000

Remainder of asset distributions 0.20 0.30 0.50

Cash Distribution Plan

Deng Danielson Gibson

Order of Cash Distribution Liabilities 0.20 __0.30__ __0.50__

1. First $225,000 100%

2. Next $75,000 100%

3. Next $250,000 40% 60%

4. Remainder 20% 30% 50%

Question Title: Test Bank (Problem) Question 16-8

Difficulty: Hard

Learning Objective: 3 Prepare a liquidation schedule to settle debts and allocate assets., 4 Prepare a “safe payment approach” liquidation schedule., 5 Describe the four steps in the preparation of an advance plan for the distribution of cash in a partnership liquidation.

Section Reference: 16.3, 16.4