Test Bank Advanced Accounting 3E by Jeter 16 chapter PDF

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Chapter 16 Partnership Liquidation Multiple Choice 1.

Which of the following statements is correct? 1. Personal creditors have first claim on partnership assets. 2. Partnership creditors have first claim on partnership assets. 3. Partnership creditors have first claim on personal assets. a. 1 b. 2 c. 3 d. Both 2 and 3

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.

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.

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.

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.

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.

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.

16-2

Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition

8.

The following condensed balance sheet is presented for the partnership of Jim, Bill, and Fred who share profits and losses in the ratio of 4:3:3, respectively: Cash Other assets Jim, receivable

$ 180,000 1,940,000 60,000 $ 2,180,000

Accounts payable Bill, loan Jim, capital Bill, capital Fred, capital

$ 480,000 80,000 720,000 440,000 460,000 $2,180,000

Assume that the assets and liabilities are fairly valued on the balance sheet and that the partnership decides to admit Tom as a new partner, with a 25% interest. No goodwill or bonus is to be recorded. How much should Tom contribute in cash or other assets? a. $270,000 b. $405,000 c. $540,000 d. $520,000 9.

The partnership of Joe, Al, and Mike shares profits and losses 60%, 30%, and 10%, respectively. On January 1, 2011, the partners voted to dissolve the partnership, at which time the assets, liabilities, and capital balances were as follows: Assets Cash Other Assets

$ 400,000 1,200,000

Total assets

$1,600,000

Liabilities and Capital Accounts Payable Joe, Capital Al, Capital Mike, Capital Total liabilities

$ 580,000 440,000 380,000 200,000 $1,600,000

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. Joe, $744,000; Al, $372,000; Mike, $124,000. b. Joe, $440,000; Al, $380,000; Mike, $200,000. c. Joe, $224,000; Al, $272,000; Mike, $164,000. d. Joe, $396,000; Al, $198,000; Mike, $66,000.

Chapter 16 Partnership Liquidation 10.

16-3

The partnership of Pratt, Ellis, and Mack 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: Assets Cash $ 250,000 Other assets 1,000,000 $1,250,000 Liabilities and Capital Liabilities Pratt, Capital Ellis, Capital Mack, Capital

$ 200,000 300,000 350,000 400,000 $1,250,000

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. Pratt, $90,000; Ellis, $140,000; Mack, $295,000 b. Pratt, $210,000; Ellis, $290,000; Mack, $145,000 c. Pratt, $290,000; Ellis, $210,000; Mack, $105,000 d. Pratt, $150,000; Ellis, $175,000; Mack, $200,000 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.

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.

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.

16-4

Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition

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.

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.

16.

The ABC partnership has the following capital accounts on its books at December 31, 2011: Credit A, Capital $400,000 B, Capital 240,000 C, Capital 80,000 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, $-0c. A, $304,000; B, $176,000; C, $-0d. A, $120,000; B, $80,000; C, $200,000

17.

The summarized balances of the accounts of MNO partnership on December 31, 2011, are as follows: Assets Cash Noncash Total Assets

$ 15,000 90,000 $105,000

Liabilities and Capital Liabilities $ 15,000 M, Capital 45,000 N, Capital 30,000 O, Capital 15,000 Total Equities $105,000

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, 2011? a. $20,000 b. $35,000 c. $75,000 d. $120,000

Chapter 16 Partnership Liquidation 18.

16-5

Adamle, Boyer, and Clay 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: ADAMLE, BOYER, AND CLAY Balance Sheet January 1, 2011 Assets Cash Other assets

$ 60,000 540,000

Total Assets

$600,000

Liabilities and Equity Adamle, Capital Boyer, Capital Clay, Capital Total Liabilities & Equities

$216,000 240,000 144,000 $600,000

After the partnership was liquidated and the cash was distributed, Boyer 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 19.

The partnership of Hall, Jones, and Otto has been dissolved and is in the process of liquidation. On July 1, 2011, just before the second cash distribution, the assets and equities of the partnership along with residual profit sharing ratios were as follows: Assets Cash Receivables-net Inventories Equipment-net Total assets

$ 200,000 50,000 150,000 100,000 $ 500,000

Liabilities & Equities Liabilities $ Hall, Capital 50% Jones, Capital 30% Otto, Capital 20% Total Lia & Equity

150,000 100,000 175,000 75,000 500,000

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? Hall a. $87,500 b. 12,500 c. -0d. -0-

Jones $52,500 7,500 25,000 15,000

Otto $35,000 10,000 -010,000

16-6

Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition

20.

The partnership of Hall, Jones, and Otto has been dissolved and is in the process of liquidation. On July 1, 2011, just before the second cash distribution, the assets and equities of the partnership along with residual profit sharing ratios were as follows: Assets Cash Receivables-net Inventories Equipment-net Total assets

$ 200,000 50,000 150,000 100,000 $ 500,000

Liabilities & Equities Liabilities $ Hall, Capital 50% Jones, Capital 30% Otto, Capital 20% Total Lia & Equity

150,000 100,000 175,000 75,000 500,000

Assume that Hall 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: Hall Jones Otto a. $100,000 $60,000 $40,000 b. 25,000 15,000 10,000 c. -0 45,000 5,000 d. -0 50,000 -0 21.

The partnership of Starr, Foley, and Pele 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: Assets Cash Other assets Total assets

$150,000 600,000 $750,000

Liabilities and Equity Liabilities $120,000 Starr, Capital 180,000 Foley, Capital 210,000 Pele, Capital 240,000 Total Lia & Equity $750,000

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. Starr, $54,000; Foley, $84,000; Pele, $177,000. b. Starr, $174,000; Foley, $174,000; Pele, $87,000. c. Starr, $126,000; Foley, $126,000; Pele, $63,000. d. Starr, $90,000; Foley, $105,000; Pele, $120,000. 22.

A, B, and C have capital balances of $90,000, $60,000, and $30,000, respectively. Profits are allocated 35% to A, 35% to B and 30% to C. The partners have decided to dissolve and liquidate the partnership. After paying all creditors the amount available for distribution is $60,000. A, B, and C are all personally solvent. Under the circumstances, C 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.

Chapter 16 Partnership Liquidation 23.

16-7

The ABC partnership has the following capital accounts on its books at December 31, 2011: A, Capital B, Capital C, Capital

Credit $200,000 120,000 40,000

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 24.

The summarized balances of the accounts of RST partnership on December 31, 2011, are as follows: Assets Liabilities and Equity Cash $ 30,000 Liabilities $ 30,000 Noncash 180,000 R, Capital 90,000 S, Capital 60,000 T, Capital 30,000 Total Assets $210,000 Total Lia & Equities $210,000 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, 2011? a. $60,000 b. $70,000 c. $150,000 d. $240,000

25.

The partnership of Hill, Kiner, and Polk has been dissolved and is in the process of liquidation. On July 1, 2011, just before the second cash distribution, the assets and equities of the partnership along with residual profit sharing ratios were as follows: Assets Liabilities and Equity Cash $ 80,000 Liabilities $ 60,000 Receivables-net 20,000 Hill, Capital 50% 40,000 Inventories 60,000 Kiner, Capital 30% 70,000 Equipment-net 40,000 Polk, Capital 20% 30,000 Total assets $200,000 Total Lia & Equity $200,000 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? Hill Kiner Polk a. $35,000 $21,000 $14,000 b. $5,000 $3,000 $4,000 c. $0 $10,000 $0 d. $0 $6,000 $4,000

16-8

Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition

Problems 16-1

The NOR Partnership is being liquidated. A balance sheet prepared prior to liquidation is presented below: Assets Cash Other Assets

Total Assets

$240,000 300,000

$540,000

Liabilities & Equities Liabilities $ 160,000 Reese, Loan 60,000 Nen, Capital 180,000 Ott, Capital 60,000 Reese, Capital 80,000 Total Equities $540,000

Nen, Ott, and Reese 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. 16-2 CASH 180,000

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

The trial balance for the ABC Partnership is as follows just before liquidation: OTHER ASSETS 625,000

BALL RECEIVABLE = 90,000

LIABILITIES 150,000

ADLER CAPITAL 420,000

BALL CAPITAL 270,000

CARL CAPITAL 180,000

Partners share profits a 50:30:20 ratio. Required: Prepare an advance cash distribution plan showing how available cash would be distributed. 16-3

Lewis, Nance, and Otis 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 Otis, Loan 36,000 Lewis, Capital 165,000 Nance, Capital 36,000 Otis, Capital 39,000 Otis, Drawing 21,000 _______ Totals $441,000 $441,000

Chapter 16 Partnership Liquidation

16-9

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. 16-4

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 Other Assets

Total Assets

$ 100,000 350,000

$450,000

Liabilities A, Capital B, Capital C, Capital D, Capital Total Lia & Equities

The personal status of each partner is as follows: Personal _Assets_ A $165,000 B 100,000 C 180,000 D 60,000

$250,000 55,000 60,000 50,000 35,000 $450,000

Personal Liabilities $ 120,000 140,000 160,000 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. CASH $100,000

OTHER ASSETS $350,000

LIABILITIES $250,000

__A__ 55,000

CAPITAL __B__ __C__ 60,000 50,000

__D__ 35,000

16-10 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition B. Complete the following schedule to show the total amount that will be paid to the personal creditors. From Personal _Assets_

Distribution from _Partnership_

Total Paid to Personal _Creditors_

A B C D

16-5

A trial balance for the DEF partnership just prior to liquidation is given below: Cash Noncash Assets Nonpartner Liabilities Dugan, Loan Dugan, Capital Elston, Capital Flynn, Capital Totals

Debit $ 75,000 750,000

$825,000

Credit $240,000 75,000 225,000 153,000 132,000 $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. 16-6

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...