978-1259444951 Test Bank Chapter 15 Part 1

File: Chapter 15 – Partnerships: Termination and Liquidation

1. When a partnership is insolvent and a partner has a deficit capital account balance, that partner

is legally required to:

A) Declare personal bankruptcy.

B) Initiate legal proceedings against the partnership.

C) Contribute cash to the partnership.

D) Deliver a note payable to the partnership with specific payment terms.

E) None of these answer choices are correct. The partner has no legal responsibility to cover the

capital deficit balance.

2. If the noncash assets were sold for $234,000, what amount of the loss would have been

allocated to Bartle with respect to the noncash assets?

A) $43,200.

B) $46,800.

C) $40,000.

D) $42,400.

E) $43,100.

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Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Non-Cash Assets BV $434,000 – Cash Received $234,000 = Loss on Non-

Cash Assets ($200,000) × 20% = Loss to Bartle ($40,000)

[QUESTION]

REFER TO: 15-01

3. Assuming that the noncash assets were sold for $134,000, which partner(s) would have been

required to contribute assets to the partnership to cover a deficit in his or her capital account, prior

to considering the liquidation expenses incurred?

A) Abrams.

B) Bartle.

C) Creighton.

D) Abrams and Creighton.

E) Abrams and Bartle.

4. Assuming that, after the payment of liquidation expenses in the amount of $12,000 was made

and the noncash assets were sold, if Creighton has a deficit of $8,000, for what amount would the

noncash assets have been sold?

A) $170,000.

B) $264,000.

C) $158,000.

D) $146,000.

E) $185,000.

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AICPA: BB Legal

AICPA: FN Measurement

Feedback: The resulting deficit of $8,000 is after depleting Creighton’s capital account balance of

$130,000. Thus, a total of $138,000 was allocated to reduce Creighton’s capital account balance.

Since Creighton was allocated one-half of the total reduction, the total allocation of expenses and

losses was $276,000 of which $12,000 was for liquidation expenses, leaving a total loss on the

sale of non-cash assets of $264,000. The non-cash assets were sold for $264,000 less than book

value = sale of non-cash assets for $170,000. The result is provided as: [Non-Cash Assets BV

$434,000 – Cash Received $170,000] + Liquidation Expenses $12,000 = Loss on Non-Cash

Assets ($276,000) × 50% = Loss to Abrams ($138,000) – Capital Account Balance $130,000 =

Creighton’s Deficit $8,000.

REFERENCE: 15-02

The Keaton, Lewis, and Meador partnership had the following balance sheet just before entering

liquidation:

Cash

$ 100,000

Liabilities

$ 40,000

Noncash assets

210,000

Keaton, Capital

90,000

Lewis, Capital

60,000

Meador, Capital

120,000

Total

$ 310,000

Total

$ 310,000

Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4.

[QUESTION]

REFER TO: 15-02

5. Assume that noncash assets were sold for $58,000 and liquidation expenses in the amount of

$10,000 were incurred. If Lewis was personally insolvent and could not contribute any assets to

the partnership, and Keaton and Meador were both solvent, what amount of cash would Keaton

receive from the distribution of partnership assets?

A) $0.

B) $56,000.

C) $57,600.

D) $59,600.

E) $60,000.

Capital account balances, after the allocation of these losses, were as follows: Keaton ($90,000 –

$30,400 (Loss on Noncash Assets) – $2,000 (Liquidation Expenses) = $57,600); Lewis ($60,000 –

$60,800 (Loss on Noncash Assets) – $4,000 (Liquidation Expenses) = Deficit ($4,800)); Meador

($120,000 – $60,800 (Loss on Noncash Assets) – $4,000 (Liquidation Expenses) = $55,200.

Allocation of Lewis’ $4,800 Deficit to Keaton and Meador: $1,600 to Keaton ($4,800 × 1/3 =

$1,600) and $3,200 to Meador ($4,800 × 2/3 = $3,600).

Keaton’s ending Capital account balance: $57,600 – $1,600 = $56,000.

[QUESTION]

REFER TO: 15-02

6. Assuming noncash assets were sold for $60,000, how much will each partner receive in the

liquidation?

Keaton

Lewis

Meador

A)

$ 40,000

$ 26,667

$ 53,333

B)

$ 24,000

$ 48,000

C)

$ 56,667

$ 0

$ 53,333

D)

$ 0

$120,000

E)

$ 36,000

$ 12,000

$ 72,000

$ 40,000

$ 0

$ 20,000

B)

$ 12,000

$ 24,000

$ 20,000

$ 13,333

$ 26,667

$ 60,000

$ 0

$ 10,000

$ 0

$ 50,000

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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 $210,000 = Maximum Loss on Non-Cash Assets ($210,000) ×

20% = Loss to Keaton ($42,000); ($210,000) × 40% = ($42,000)Loss to Lewis and to Meador.

Potential Balances: Keaton $90,000 – Loss ($42,000) = Keaton Potential Balance $48,000.

Lewis $60,000 – Loss ($84,000) = Lewis Potential Balance ($24,000).

Meador $120,000 – Loss ($84,000) = Meador Potential Balance $36,000.

Lewis’ Deficit ($24,000) × 1/3 = Lewis’ Deficit Portion to Keaton ($8,000) and 2/3 × ($24,000) =

Lewis’ Deficit Portion to Meador ($16,000). Lewis will receive $0.

Keaton Potential Balance $48,000 + Lewis’ Deficit Portion ($8,000) = Keaton’s Safe Payment

$40,000.

Meador Potential Balance $36,000 + Lewis’ Deficit Portion ($16,000) = Meador’s Safe Payment

$20,000.

REFERENCE: 15-03

The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following

account balances:

Cash $ 90,000 Liabilities $ 60,000

Noncash assets 300,000 Henry, capital 80,000

Isaac, capital 110,000

Jacobs, capital 140,000

Total $ 390,000 Total $ 390,000

Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and

losses in a ratio of 2:4:4.

[QUESTION]

REFER TO: 15-03

8. What amount of cash was available for safe payments, based on the above information?

A) $30,000.

B) $85,000.

C) $25,000.

D) $35,000.

E) $40,000.

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$25,000

[QUESTION]

REFER TO: 15-03

9. Before liquidating any assets, the partners determined the amount of cash available for safe

payments. How should the amount of safe cash payments be distributed?

A) In a ratio of 2:4:4 among all the partners.

B) $18,333 to Henry and $16,667 to Jacobs.

C) In a ratio of 1:2 between Henry and Jacobs.

D) $15,000 to Henry and $10,000 to Jacobs.

E) $21,667 to Henry and $3,333 to Jacobs.

10. Before liquidating any assets, the partners determined the amount of cash for safe payments

and distributed it. The noncash assets were then sold for $120,000. The liquidation expenses of

$5,000 were paid prior to the sale of noncashassets. How would the $120,000 be distributed to

the partners? (Hint: Either a predistribution plan or a schedule of safe capital balances would be

appropriate for solving this item.)

Henry

Isaac

Jacobs

A)

$ 33,000

$ 36,000

$ 51,000

B)

$ 28,000

$ 36,000

$ 56,000

C)

$ 29,333

$ 32,000

$ 58,667

D)

$ 24,000

$ 48,000

E)

$ 38,000

$ 26,000

$ 56,000

11. For what amount would noncash assets need to be sold to generate enough cash in order that

at least one partner would receive some cash upon liquidation?

A) $185,000

B) $170,000

C) $165,000

D) $ 95,000

E) $ 90,000

12. For what amount would the noncash assets need to be sold in order for Quincy to receive

some cash from the liquidation?

A) Any amount in excess of $170,000.

B) Any amount in excess of $190,000.

C) Any amount in excess of $260,000.

D) Any amount in excess of $280,000.

E) Any amount in excess of $300,000.

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However, the two remaining partners asked to receive the $31,000 that was then in the cash

account.

[QUESTION]

REFER TO: 15-05

13. 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.

14. How much of this money should Zobart receive?

A) $15,467.

B) $14,467.

C) $17,333.

D) $15,633.

E) $15,867.

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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.

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.

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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.

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.

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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:

Dancey, capital $ 72,000

Reese, capital 32,000

Newman, capital 52,000

Jahn, capital 24,000

[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.

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.

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

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.

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.

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.

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.

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.

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.

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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.

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.

McGraw-Hill Education.

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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

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

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AICPA: FN Measurement

Feedback:

White Sands Luke

30% 20% 50%

Beginning Balances 60,000 100,000 200,000

Assumed Loss (Sched A) 200,000 (60,000) (40,000) (100,000)

Step 1 Balances 0 60,000 100,000

Assumed Loss (Sched B) 140,000 (40,000) (100,000)

Step 2 Balances 20,000 0

Available Cash Amount Recipient

First 20,000 Sands

Next 140,000 Sands (2/7) and Luke (5/7)

All further cash White (30%), Sands (20%) and Luke (50%)

Schedule A

Partner

Capital

Balance

Loss

Allocation

Maximum

Loss

White 60,000 30% 200,000 *

Sands 100,000 20% 500,000

Luke 200,000 50% 400,000

Schedule B

Partner

Capital

Balance

Loss

Allocation

Maximum

Loss

White 0

Sands 60,000 2/7 210,000

Luke 100,000 5/7 140,000 *

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.

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

settlement?

A) $ 5,000.

B) $ 9,000.

C) $18,000.

D) $28,000.

E) $55,000.

34. If the land is sold for $450,000, what amount will Roberts receive in the final settlement?

A) $ 0.

B) $ 30,000.

C) $217,500.

D) $362,500.

E) $502,500.

McGraw-Hill Education.

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AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Capital account balances: R = $500,000; F = $300,000; M = $30,000 with Losses

Shared 5:3:2

First eliminate M Balance of $30,000 in $250,000 Loss

Losses now shared 5/8 & 3/8. Remaining loss to allocate = $220,000 ($250,000 – $30,000 to M).

R = $500,000 – ($220,000 × 5/8) $137,500 = $362,500

F = $300,000 – ($220,000 × 3/8) $82,500 = $217,500

[QUESTION]

REFER TO: 15-10

35. If the land is sold for $450,000, how much cash will Mones receive in the final settlement?

A) $ 0.

B) $ 15,000.

C) $300,000.

D) $217,500.

E) $362,500.

36. Matching

(1.) The statement of liquidation

(2.) Deficit capital account balances

(3.) Safe capital account balances

(4.) Predistribution plan

(A.) A report produced periodically by the accountant to disclose transactions that have occurred

during liquidation, the remaining assets and liabilities, and updated capital account balances.

(B) At the start of a liquidation, this document provides guidance for all payments to be made to

the partners throughout the liquidation.

(C.) One or more partners may have a negative capital account balance often as a result of losses

incurred in disposing of assets.

(D.) A provision for an equitable distribution of assets during liquidation.