Question 1

If a partner of a liquidating limited liability partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the income-sharing ratio of those partners.

Accepted Answer

In a liquidating limited liability partnership, if a partner cannot cover a capital account deficit, the remaining deficit is typically absorbed by the other partners according to the income-sharing ratio agreed upon in the partnership agreement. This is because the partners have a fiduciary responsibility to cover losses in the partnership, including capital deficits, based on the agreed-upon terms.

Question 2

After the realization of all noncash assets and the distribution of all available cash to the creditors, Kapp & Lodi LLP owed $15,000 to creditors. If at this point Kapp had a capital account balance of $18,000, Lodi had a capital account deficit of $3,000.

Accepted Answer

False

Question 3

Gains and losses from the realization of noncash assets by limited liability partnership in a liquidation are divided in the ratio of the partners' capital account balances if there is no income-sharing plan in the partnership contract.

Accepted Answer

False

Question 4

A loan receivable from a partner is added to the partner's capital account balance in the preparation of a cash distribution program to be used by the liquidator of the limited liability partnership.

Accepted Answer

A loan receivable from a partner is considered a separate entity from the partner's capital account balance and is not added to it in the preparation of a cash distribution program. The loan is treated as an asset of the partnership to be collected, not as capital contributed by the partner.

Question 5

In the process of liquidation, partners may receive cash from a limited liability partnership before creditors receive cash if the noncash assets of the partnership are expected to realize a gain.

Accepted Answer

In the process of liquidation, creditors have priority over partners and must be paid before any distribution of cash to partners, regardless of the expected gain on noncash assets.

Question 6

If the partners' capital account balances have been reduced to the income-sharing ratio, subsequent cash payments to partners during liquidation of a limited liability partnership may be made in the ratio of their capital account balances.

Accepted Answer

In a limited liability partnership, partners' capital account balances are reduced to the income-sharing ratio during liquidation. Subsequent cash payments to partners are then made in the ratio of their capital account balances.

Question 7

The marshaling of assets provisions of the Uniform Partnership Act deal with the order in which assets are realized during the liquidation of a limited liability partnership.

Accepted Answer

The marshaling of assets is a legal principle that ensures the fair and orderly distribution of assets among creditors, not specifically a provision of the Uniform Partnership Act dealing with the liquidation of a limited liability partnership.

Question 8

All cash payments to partners during the liquidation of a limited liability partnership are made in the income-sharing ratio.

Accepted Answer

During the liquidation of a limited liability partnership, cash payments to partners are typically made according to the partnership agreement, which often prioritizes the repayment of capital contributions before distributing remaining assets based on the income-sharing ratio.

Question 9

In the computation of the amount of cash that may be paid to partners of a liquidating limited liability partnership on a specific date, accountants may assume that the maximum potential loss will be equal to the total of remaining noncash assets plus estimated liquidation costs.

Accepted Answer

Accountants assume the maximum potential loss includes the total of remaining noncash assets and estimated liquidation costs to ensure all liabilities are covered before distributing cash to partners.

Question 10

If a limited liability partnership is incorporated, the assets transferred to the corporation are entered in the accounting records of the corporation at current fair values.

Accepted Answer

When assets are transferred from a limited liability partnership to a corporation, they are recorded in the corporation's accounting records at their current fair values to accurately reflect their market value at the time of transfer.

Question 11

The investor enterprise must use the equity method of accounting for an investment in an unincorporated joint venture.

Accepted Answer

The answer of The investor enterprise must use the equity...

Question 12

If a limited liability partnership is incorporated, the corporation generally records the amount of the partnership's allowance for doubtful accounts, but does not record the accumulated depreciation of plant assets transferred to the corporation by the partnership.

Accepted Answer

The corporation does not record the accumulated depreciation of plant assets transferred to the corporation by the partnership because the partnership's accumulated depreciation is not an asset of the corporation.

Question 13

The fiscal year of a joint venture need not coincide with the fiscal years of the venturers.

Accepted Answer

The fiscal year of a joint venture can be determined independently and does not have to align with the fiscal years of the participating entities or venturers.

Question 14

Two of the journal entries prepared by an investor in an unincorporated joint venture under the proportionate share method of accounting are identical to journal entries prepared under the equity method of accounting.

Accepted Answer

Under both the proportionate share method and the equity method, the investor recognizes their share of the joint venture's income and any dividends received from the joint venture in a similar manner, leading to at least two types of journal entries that are identical between the methods.

Question 15

The use of the equity method of accounting by investors in unincorporated joint ventures results in off-balance-sheet financing by the investors.

Accepted Answer

The equity method of accounting does not consolidate the joint venture's assets and liabilities on the investor's balance sheet, resulting in off-balance-sheet financing.

Question 16

If cash payments to partners of a limited liability partnership in liquidation are delayed until all noncash assets have been realized, any cash remaining after all partnership creditors have been paid is distributed:

Accepted Answer

After all partnership creditors have been paid, any remaining cash is distributed to partners based on their loan and capital account balances, reflecting their respective interests in the partnership.

Question 17

In the liquidation of a limited liability partnership, a loan payable to a partner by the partnership is:

Accepted Answer

The answer of In the liquidation of a limited liability...

Question 18

During the liquidation of Gym, Hob & Ing LLP, Partner Hob withdrew equipment with a cost to the partnership of $18,000, accumulated depreciation of $8,000, and a current fair value of $13,000. The partners shared net income and losses equally. The net debit to Hob's capital account (including any gain or loss on disposal of the equipment), assuming the noncash asset may be distributed safely to Hob, is:

Accepted Answer

Rationale: ($13,000 - $1,000 share of gain = $12,000)

Question 19

In the preparation of an advance plan for installment payments of cash to partners of a liquidating limited liability partnership, each partner's capital per unit of income sharing is computed by:

Accepted Answer

C) is correct because it accurately describes a method for computing a partner's capital per unit of income sharing by adjusting the capital account for any loans and then dividing by the income-sharing ratio, which is a common approach in partnership accounting.

Question 20

In a marshaling of assets, the claims of limited liability partnership creditors rank:

Accepted Answer

Partners' personal creditors have a higher priority than limited liability partnership creditors against partners' personal assets.

Quiz 3: Partnership Liquidation and Incorporation; Joint Ventures