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How much of the $31,000 in the cash account should Justice receive?

A) $15,467.

B) $15,533.

C) $17,333.

D) $16,533.

E) $15,867.

Answer: B

Learning Objective: 15-03  

Topic: Safe payments―Allocate potential loss―Deficit

Difficulty: 2 Medium 

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Douglass’ Deficit ($14,000) × (.40/.75) = ($7,467) + Justice’s Capital account balance $23,000 = $15,533 Distribution to Justice

  

[QUESTION]

REFER TO: 15-05

14.  How much of this money should Zobart receive?

A) $15,467.

B) $14,467.

C) $17,333.

D) $15,633.

E) $15,867.

Answer: A

Learning Objective: 15-03  

Topic: Safe payments―Allocate potential loss―Deficit

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Douglass’ Deficit ($14,000) × (.35/.75) = ($6,533) + Zobart’s Capital account balance $22,000 = $15,467 Distribution to Zobart

   

REFERENCE: 15-06

A local partnership was considering the possibility of liquidation.  Capital account balances at that time were as follows.  Profits and losses were divided on a 4:2:2:2 basis, respectively.

 

At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000.  There was no cash on hand at the time.

[QUESTION]

REFER TO: 15-06

15.  If the assets could be sold for $228,000 and there are no liquidation expenses, what is the amount that Ding would receive from the liquidation?

A) $36,000.

B) $          0.

C) $  2,500.

D) $38,720.

E) $67,250.

Answer: C

Learning Objective: 15-04

Topic: Schedule of liquidation―Safe capital balances

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Non-Cash Assets BV $360,000 – Cash Received $228,000 = Loss on Non-Cash Assets ($132,000) × 40% = ($52,800) Loss to Ding; ($132,000) × 20% = ($26,400) Loss each to Laurel, Ezzard, and Tillman.

Potential balances: Ding $60,000 – Loss ($52,800) = Ding Potential Balance $7,200.

Laurel $67,000 – Loss ($26,400) = Laurel Potential Balance $40,600.

Ezzard $17,000 – Loss ($26,400) = Ezzard Potential Balance ($9,400).

Tillman $96,000 – Loss ($26,400) = Tillman Potential Balance $69,600.

Ezzard’s Deficit ($9,400) × 4/8 = Ezzard’s Deficit Portion to Ding ($4,700) and 2/8 × ($9,400) = Ezzard’s Deficit Portion each to Laurel and Tillman ($2,350). 

Ding potential balance $7,200 + Ezzard’s Deficit Portion ($4,700) = Amount Ding Receives from Liquidation $2,500

   

[QUESTION]

REFER TO: 15-06

16.  If the assets could be sold for $228,000 and there are no liquidation expenses, what is the amount that Laurel would receive from the liquidation?

A) $36,000.

B) $          0.

C) $  2,500.

D) $38,250.

E) $67,250.

Answer: D

Learning Objective: 15-04

Topic: Schedule of liquidation―Safe capital balances

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Non-Cash Assets BV $360,000 – Cash Received $228,000 = Loss on Non-Cash Assets ($132,000) × 40% = ($52,800) Loss to Ding; ($132,000) × 20% = ($26,400) Loss each to Laurel, Ezzard, and Tillman.

Potential balances: Ding $60,000 – Loss ($52,800) = Ding Potential Balance $7,200.

Laurel $67,000 – Loss ($26,400) = Laurel Potential Balance $40,600.

Ezzard $17,000 – Loss ($26,400) = Ezzard Potential Balance ($9,400).

Tillman $96,000 – Loss ($26,400) = Tillman Potential Balance $69,600.

Ezzard’s Deficit ($9,400) × 4/8 = Ezzard’s Deficit Portion to Ding ($4,700) and 2/8 × ($9,400) = Ezzard’s Deficit Portion each to Laurel and Tillman ($2,350). 

Laurel potential balance $40,600 + Ezzard’s Deficit Portion ($2,350) = Amount Laurel Receives from Liquidation $38,250

   

[QUESTION]

REFER TO: 15-06

17.  If the assets could be sold for $228,000 and there are no liquidation expenses, what is the minimum amount that Ezzard would receive from the liquidation?

A) $36,000.

B) $          0.

C) $   2,500.

D) $38,250.

E) $67,250.

Answer: B

Learning Objective: 15-04

Topic: Schedule of liquidation―Safe capital balances

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Non-Cash Assets BV $360,000 – Cash Received $228,000 = Loss on Non-Cash Assets ($132,000) × 40% = ($52,800) Loss to Ding; ($132,000) × 20% = ($26,400) Loss each to Laurel, Ezzard, and Tillman.

Potential balance Ezzard $17,000 – Loss ($26,400) = Ezzard Potential Balance ($9,400).

Ezzard Receives $0 from Liquidation and Owes Other Partners $9,400.

  

[QUESTION]

REFER TO: 15-06

18.  If the assets could be sold, for $228,000 and there are no liquidation expenses what is the amount that Tillman would receive from the liquidation?

A) $36,000.

B) $          0.

C) $  2,500.

D) $38,250.

E) $67,250.

Answer: E

Learning Objective: 15-04

Topic: Schedule of liquidation―Safe capital balances

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Non-Cash Assets BV $360,000 – Cash Received $228,000 = Loss on Non-Cash Assets ($132,000) × 40% = ($52,800) Loss to Ding; ($132,000) × 20% = ($26,400) Loss each to Laurel, Ezzard, and Tillman.

Potential balances: Ding $60,000 – Loss ($52,800) = Ding Potential Balance $7,200.

Laurel $67,000 – Loss ($26,400) = Laurel Potential Balance $40,600.

Ezzard $17,000 – Loss ($26,400) = Ezzard Potential Balance ($9,400).

Tillman $96,000 – Loss ($26,400) = Tillman Potential Balance $69,600.

Ezzard’s Deficit ($9,400) × 4/8 = Ezzard’s Deficit Portion to Ding ($4,700) and 2/8 × ($9,400) = Ezzard’s Deficit Portion each to Laurel and Tillman ($2,350). 

Tillman potential balance $69,600 + Ezzard’s Deficit Portion ($2,350) = Amount Tillman Receives from Liquidation $67,250

   

REFERENCE: 15-07

Dancey, Reese, Newman, and Jahn were partners who shared profits and losses on a 4:2:2:2 basis, respectively.  They were beginning to liquidate their business.  At the start of the process, Capital account balances were as follows:

 

[QUESTION]

REFER TO: 15-07

19.  Which one of the following statements is true for a predistribution plan?

A) The first available $16,000 would go to Newman.

B) The first available $20,000 would go to Dancey.

C) The first available $8,000 would go to Jahn.

D) The first available $8,000 would go to Newman.

E) The first available $4,000 would go to Jahn.

Answer: A

Learning Objective: 15-05  

Topic: Predistribution plan―Order of available cash

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: D = $72,000; R = $32,000; N = $52,000; J = $24,000 with Losses Shared 4:2:2:2

First eliminate lowest value J = $24,000 – $24,000 = 0

D = $72,000 – $48,000 = $24,000 – $16,000 = $8,000 – $8,000 = 0

R= $32,000 – $24,000 = $8,000 – $8,000 = 0

N= $52,000 – $24,000 = $28,000 – $8,000 = $20,000 – $4,000 = $16,000

[QUESTION]

REFER TO: 15-07

20.  Which one of the following statements is true for a predistribution plan?

A) The first available $16,000 would go to Newman.  The next $12,000 would go $8,000 to Dancey and $4,000 to Newman.  The following $32,000 would be shared equally between Dancey, Reese, and Newman.  A total distribution of $60,000 would be required before all four partners share any further payments equally.

B) The first available $16,000 would go to Newman.  The next $12,000 would go $8,000 to Dancey and $4,000 to Newman.  The following $32,000 would be shared by Dancey, Reese, and Newman.  The total distribution would be $60,000 before all four partners share any further payments in their profit and loss sharing ratios.

C)  The first $20,000 would go to Newman.  The next $8,000 would go to Dancey.  The next $12,000 would be shared equally by Dancey, Reese, and Newman.  The total distribution would be $40,000 before all four partners share any further payments equally.

D) The first available $8,000 would go to Newman.  The next $4,000 would be split equally between Dancey and Newman.  The following $12,000 would be shared by Dancey, Reese, and Newman.  The total distribution would be $24,000 before all four partners share any further payments equally.

E) The first available $8,000 would go to Newman.  The next $4,000 would be split equally between Dancey and Newman.  The following $12,000 would be shared by Dancey, Reese, and Newman.  The total distribution would be $24,000 before all four partners share any further payments in their profit and loss sharing ratios.

Answer: B

Learning Objective: 15-05  

Topic: Predistribution plan―Order of available cash

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: D = $72,000; R = $32,000; N = $52,000; J = $24,000 with Losses Shared 4:2:2:2

First eliminate lowest value J = $24,000 – $24,000 = 0

D = $72,000 – $48,000 = $24,000 – $16,000 = $8,000 – $8,000 = 0

R = $32,000 – $24,000 = $8,000 – $8,000 = 0

N = $52,000 – $24,000 = $28,000 – $8,000 = $20,000 – $4,000 = $16,000

   

[QUESTION]

21.  Which of the following could result in the termination and liquidation of a partnership?

1)  Partners are incompatible and choose to cease operations.

2)  There are excessive losses that are expected to continue.

3)  Retirement of a partner.

A)  1 only

B)  1 and 2 only

C)  2 and 3 only

D)  3 only

E)   1, 2, and 3

Answer: E

Learning Objective: 15-01  

Topic: Partnership termination and liquidation―General

Difficulty: 1 Easy

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Legal

AICPA: FN Measurement

   

[QUESTION]

22.  What accounting transactions are not recorded by an accountant during partnership liquidation?

A) The conversion of partnership assets into cash.

B) The allocation of gains and losses from sales of assets.

C) The payment of liabilities and expenses.

D) The initiation of legal action by creditors of the partnership.

E) Write-off of remaining unpaid debts.

Answer: D

Learning Objective: 15-02  

Topic: Prepare journal entries to record transactions

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Legal

AICPA: FN Measurement

  

[QUESTION]

23.  Which of the following statements is false concerning the partnership Statement of Liquidation?

A) Liquidations may take a considerable length of time to complete.

B) Frequent reporting by the accountant is rarely necessary.

C) The Statement of Liquidation provides a listing of transactions to date, current cash, and capital account balances.

D) The Statement of Liquidation provides a listing of property still held by the partnership as well as liabilities remaining unpaid.

E) The Statement of Liquidation keeps creditors and partners apprised of the results of the process of dissolution.

Answer: B

Learning Objective: 15-02  

Topic: Statement of liquidation―Updated balances

Difficulty: 2 Medium 

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Legal

AICPA: FN Measurement

  

[QUESTION]

24.  What is the preferred method of resolving a partner’s deficit balance, according to the Uniform Partnership Act?

A) Partners never have a deficit balance.

B) The other partners must contribute personal assets to cover the deficit balance.

C) The partnership must sell assets in order to cover the deficit balance.

D) The partner with a deficit balance must contribute personal assets to cover the deficit balance.

E) The partner with a deficit balance contributes personal assets only if those personal assets exceed personal liabilities.

Answer: D

Learning Objective: 15-03 

Topic: Partner deficit balance―General

Difficulty: 1 Easy 

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Legal

AICPA: FN Measurement

  

[QUESTION]

25.  Which of the following statements is true concerning the distribution of safe payments?

A) The distribution of safe payments assumes that any capital deficit balances will prove to be a total loss to the partnership.

B) Safe payments are equal to the recorded capital account balances of those partners with capital account balances in excess of $0.

C) The distribution of safe payments may only be made after all liabilities have been paid.

D) In computing safe payments, partners with positive capital account balances are assumed to absorb an equal share of any deficit balance(s).

E) There are no safe payments until the liquidation is complete.

Answer: A

Learning Objective: 15-03  

Topic: Safe payments―Allocate potential loss―Deficit

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Legal

AICPA: FN Measurement

  

[QUESTION]

26. Which one of the following statements is correct?

A) If a partner of a liquidating partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the profit and loss ratio of those partners.

B) Gains and losses from the sale of noncash assets are divided in the ratio of the partners’ capital account balances absent an alternate income-sharing plan stated in the partnership agreement.

C) A loan receivable from a partner is added to the partner’s capital account balance in the preparation of a cash distribution plan.

D) Partners may not receive any cash before partnership creditors receive cash when liquidating a partnership.

E) All cash payments to partners are made using their profit and loss ratio when liquidating the partnership.

Answer: A

Learning Objective: 15-03 

Topic: Statement of liquidation―Deficit balance

Difficulty: 1 Easy 

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Legal

AICPA: FN Measurement

[QUESTION]

27. Which item is not shown on the statement of partnership liquidation?

A) Current cash balances.

B) Property owned by the partnership.

C) Liabilities still to be paid.

D) Personal assets of the partners.

E) Current capital account balances of the partners.

Answer: D

Learning Objective: 15-02 

Topic: Statement of liquidation―Updated balances

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Legal

AICPA: FN Measurement

  

[QUESTION]

28. Harding, Jones, and Sandy, a partnership, is in the process of liquidating. The partners have the following capital account balances; $24,000, $24,000, and ($9,000) respectively.  The partners share all profits and losses 16%, 48%, and 36%, respectively.  Sandy has indicated that the ($9,000) deficit will be covered with a forthcoming contribution.  The remaining partners have requested an immediate distribution of $20,000 in cash that is available. How should this cash be distributed?

A) Harding  $5,000; Jones  $15,000.

B) Harding  $17,000; Jones  $3,000.

C) Harding  $11,154; Jones  $8,846.

D) Harding  $14,297; Jones  $5,703.

E) Harding  $12,500; Jones  $7,500.

Answer: B

Learning Objective: 15-05 

Topic: Predistribution plan―Order of available cash

Difficulty: 3 Hard 

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Harding = $72,000; Jones = $32,000; Sandy = $52,000 beginning balances with Losses Shared 16:48:36

First eliminate Sandy’s negative capital loss to Harding & Jones

Losses shared 16/64 & 48/64 or 25% & 75%

Harding = $24,000 – ($9,000 × 25%) $2,250 = $21,750 – $5,750 = $16,000 + ($4,000 × 25%) $1,000 = $17,000

Jones = $24,000 – ($9,000 × 75%) $6,750 = $17,250 – $17,250 = 0 + ($4,000 × 75%) $3,000 = $3,000

  

[QUESTION]

29. Gonda, Herron, and Morse is considering possible liquidation because partner Morse is personally insolvent.  The partners have the following capital account balances: $60,000, $70,000, and $40,000, respectively, and share profits and losses 30%, 45%, and 25%, respectively. The partnership has $200,000 in noncash assets that can be sold for $150,000.  The partnership has $10,000 cash on hand, and $40,000 in liabilities.  What is the minimum that partner Morse’s creditors would receive if they have filed a claim for $50,000?

A) $         0.

B) $27,500.

C) $45,000.

D) $47,500.

E) $50,000.

Answer: B

Learning Objective: 15-02

Topic: Statement of liquidation―Effect of transactions

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: M = $40,000 – Loss on Non-Cash Asset Sale ($50,000 × .25) $12,500 = $27,500

REFERENCE: 15-08

White, Sands, and Luke has the following capital account balances and profit and loss ratios:

 $60,000 (30%); $100,000 (20%); and $200,000 (50%). 

The partnership has received a predistribution plan.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

[QUESTION]

REFER TO: 15-08

30. How would $90,000 be distributed?

White

Sands

Luke

A)

$  15,000

$  25,000

$  50,000

B)

$          0

$  18,947

$  71,053

C)

$          0

$  40,000               

$  50,000

D)

$          0

$  10,588

$  79,412         

E)

$  27,000

$  18,000

$  45,000

Answer: C 

Learning Objective: 15-05

Topic: Predistribution plan―Order of available cash

Difficulty: 2 Medium  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback:

Sands: $20,000 + $20,000 [($90,000 – $20,000 = $70,000) × 2/7] = $40,000

Luke $50,000 [($90,000 – $20,000 = $70,000) × 5/7]

[QUESTION]

REFER TO: 15-08

31. How would $200,000 be distributed?

White

Sands

Luke

A)

$  60,000

$  40,000

$ 100,000

B)

$    6,000

$  44,000

$ 150,000

C)

$  48,148

$  65,432                

$   86,420

D)

$  12,000

$  68,000

$ 120,000

E)

$  60,000

$100,000

$  40,000

Answer: D 

Learning Objective: 15-05

Topic: Predistribution plan―Order of available cash

Difficulty: 2 Medium  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback:

White: ($200,000 – $20,000 – $140,000) × 30% = $12,000

Sands: $20,000 + $40,000 ($140,000 × 2/7) + $8,000 [($200,000 – $20,000 – $140,000) × 20%] = $68,000

Luke $100,000 ($140,000 × 5/7) + $20,000 [($200,000 – $20,000 – $140,000) × 50%] = $120,000

REFERENCE: 15-09

A local partnership has assets of cash of $5,000 and a building recorded at $80,000.  All liabilities have been paid.  The partners’ capital accounts are as follows Harry $40,000, Landers $30,000 and Waters $15,000.  The partners share profits and losses 4:4:2. 

[QUESTION]

REFER TO: 15-09

32. If the building is sold for $50,000 and there are no liquidation expenses what amount should Harry receive in the final settlement?

A) $  5,000.

B) $  9,000.

C) $18,000.

D) $28,000.

E) $55,000.

Answer: D

Learning Objective: 15-02 

Topic: Statement of liquidation―Effect of transactions

Difficulty: 1 Easy 

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: H = $40,000 – Loss on Building ($30,000 × .40) $12,000 = $28,000

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When a partnership is insolvent and a partner has a deficit capital account balance, that partner is legally required to:

If the building is sold for $50,000, what amount should Waters receive in the final settlement?