Question 1

Ivey and Balzac had a partnership that distributed profits in a ratio of 1:3 respectively. At the end of 2013, they agreed to liquidate the partnership. Prior to liquidation, the partnership had Cash of $50 000, Inventory of $75 000, Equipment (net)of $235 000, and no payables. Partner capital balances were: Ivey: $100 000 Balzac: $260 000
The inventory was sold for $59 000 and the equipment was sold for $243 000. How much cash was paid to Balzac in the final settlement?

Accepted Answer

The total cash after liquidation is $50,000 (initial cash) + $59,000 (inventory sale) + $243,000 (equipment sale) = $352,000. The total capital balance is $100,000 (Ivey) + $260,000 (Balzac) = $360,000. The loss on inventory is $75,000 - $59,000 = $16,000. The gain on equipment is $243,000 - $235,000 = $8,000. The net loss is $16,000 - $8,000 = $8,000. Ivey's share of the loss is 1/4 of $8,000 = $2,000, and Balzac's share is 3/4 of $8,000 = $6,000. Adjusted capital balances are Ivey: $98,000 and Balzac: $254,000. Balzac receives $254,000 in the final settlement.

Question 2

Which of the following statements about the liquidation of a partnership is TRUE?

Accepted Answer

The final cash distribution is based on the partners' capital account balances.

Question 3

Ivey and Balzac had a partnership that distributed profits in a ratio of 1:3 respectively. At the end of 2013, they agreed to liquidate the partnership. Prior to liquidation, the partnership had Cash of $50 000, Inventory of $75 000, Equipment (net)of $235 000, and no payables. Partner capital balances were: Ivey: $100,000 Balzac: $260,000
The inventory was sold for $59 000 and the equipment was sold for $243 000. After the assets were sold, what was Balzac's capital balance?

Accepted Answer

Balzac's capital balance is calculated by adding his share of the profit or loss from the sale of assets to his initial capital balance. The inventory was sold at a loss of $16,000 ($75,000 - $59,000), and the equipment was sold at a gain of $8,000 ($243,000 - $235,000). The net loss is $8,000. Balzac's share of the loss is 3/4 of $8,000, which is $6,000. Therefore, Balzac's capital balance is $260,000 - $6,000 = $254,000.

Question 4

Liquidation of a partnership often includes sale of assets at a loss. When the losses occur, each partner capital account is debited based on the profit and loss distribution ratio set out in the partnership agreement.

Accepted Answer

When losses occur during the liquidation of a partnership, each partner's capital account is debited based on the profit and loss distribution ratio outlined in the partnership agreement. This is because the partners are responsible for the losses incurred by the partnership, and their individual capital accounts must reflect this.

Question 5

The liquidation of a partnership means that:

Accepted Answer

Liquidation of a partnership involves selling the partnership's assets, paying off liabilities, and distributing any remaining cash to the partners.

Question 6

Ivey and Balzac had a partnership that distributed profits in a ratio of 1:3 respectively. At the end of 2013, they agreed to liquidate the partnership. Prior to liquidation, the partnership had Cash of $50 000, Inventory of $75 000, Equipment (net)of $235 000, and no payables. Partner capital balances were: Ivey: $100 000 Balzac: $260 000
The inventory was sold for $59 000 and the equipment was sold for $243 000. After the assets were sold, what was Ivey's capital balance?

Accepted Answer

Ivey's capital balance after the assets were sold is $98,000. This is calculated as follows:Ivey's share of profits = 1/4Ivey's share of losses = 1/4Ivey's share of assets = 1/4Ivey's share of cash = $50,000 x 1/4 = $12,500Ivey's share of inventory = $59,000 x 1/4 = $14,750Ivey's share of equipment = $243,000 x 1/4 = $60,750Ivey's total share of assets = $12,500 + $14,750 + $60,750 = $88,000Ivey's capital balance after the assets were sold = $88,000 + $100,000 = $98,000

Question 7

In most respects, a balance sheet for a partnership is similar to a balance sheet for a proprietorship EXCEPT for the fact that the equity section shows a capital account for each partner.

Accepted Answer

This statement is true. The balance sheet for a partnership is similar to that of a proprietorship in terms of the fundamental accounting equation (Assets = Liabilities + Equity). However, the equity section of a partnership's balance sheet shows a separate capital account for each partner, whereas a proprietorship's balance sheet shows only the owner's equity account.

Question 8

The key difference between a partnership balance sheet and a standard business balance sheet is that the partnership balance sheet:

Accepted Answer

In a partnership balance sheet, each partner's capital account is shown separately to reflect their individual contributions and share of ownership in the partnership.

Question 9

When a partnership is liquidated, the assets are sold for market value. Any gains and losses should be split according to the specified distribution of profits and losses as stated in the partnership agreement.

Accepted Answer

This is consistent with the standard procedure for liquidating a partnership. Any gains or losses are allocated based on the partnership agreement's specified distribution of profits and losses, which outlines who receives what percentage of the profits or losses generated by the business.

Question 10

When a partnership is liquidated, the assets are sold for market value and the gains and losses distributed appropriately to the partners' capital accounts. The final cash distribution should be split according to the specified distribution of profits and losses as stated in the partnership agreement.

Accepted Answer

The answer of When a partnership is liquidated, the assets...

Question 11

The key difference between a partnership income statement and a standard business income statement is that the partnership income statement:

Accepted Answer

In a partnership income statement, the distribution of profit or loss to each partner is shown below the profit or loss line, reflecting how the earnings are divided among the partners.

Question 12

If a partner withdraws from a partnership and elects to take some of the assets of the partnership away, the partnership will use the current book value of those assets to calculate the final settlement with the withdrawing partner.

Accepted Answer

The answer of If a partner withdraws from a partnership...

Question 13

When a partner withdraws from a partnership at book value, the partner will take a distribution of assets in the value of his or her capital account balance.

Accepted Answer

When a partner withdraws from a partnership at book value, the partner will receive assets in the amount of their capital account balance.

Question 14

Ivey and Balzac had a partnership that distributed profits in a ratio of 1:3 respectively. At the end of 2013, they agreed to liquidate the partnership. Prior to liquidation, the partnership had Cash of $50 000, Inventory of $75 000, Equipment (net)of $235 000, and no payables. Partner capital balances were: Ivey: $100 000 Balzac: $260 000
The inventory was sold for $59 000 and the equipment was sold for $243 000. How much cash was paid to Ivey in the final settlement?

Accepted Answer

The profit ratio is 1:3, so Ivey's share of the profit is 1/4 and Balzac's share is 3/4. The total profit is the difference between the total assets and the total liabilities, which is $50,000 + $75,000 + $235,000 - $0 = $360,000. Ivey's share of the profit is 1/4 * $360,000 = $90,000. His capital balance is $100,000, so he will receive a total of $100,000 + $90,000 = $190,000. After the inventory and equipment are sold, the partnership has $50,000 + $59,000 + $243,000 = $352,000 in cash. Ivey's share of the cash is 1/4 * $352,000 = $88,000. However, he has already received $100,000, so he will only receive an additional $88,000 - $100,000 = $8,000 in cash. Therefore, the total amount of cash paid to Ivey in the final settlement is $100,000 + $8,000 = $98,000.

Question 15

When one partner leaves the partnership for any reason, the old partnership ceases to exist.

Accepted Answer

The answer of When one partner leaves the partnership for...

Quiz 13: Partnerships