Question 1

Creditors of the partnership may seek the personal assets of the partners to satisfy amounts owed.When this happens

Accepted Answer

When creditors of a partnership seek to recover their claims, they can file against an individual partner or any combination of partners. This is because all partners in a general partnership have unlimited personal liability for partnership debts, which means creditors can pursue their claims against both the partnership assets and the personal assets of the partners. Therefore, the answer is D.

Question 2

The percentages shown are the residual profit and loss sharing ratios.The partners dissolved the partnership on July 1,2014,and began the liquidation process.During July the following events occurred:
 
-The book value of the partnership equity (i.e.,total equity of the partners)on June 30,2014 is

Accepted Answer

The book value of the partnership equity is the total of the partners' capital accounts. On June 30, 2014, the partners' capital accounts are as follows:Partner	Capital AccountA	$30,000B	$28,000Total	$58,000

Question 3

How much cash would Baker receive from the cash that is available for distribution on July 31? (Assume a safe payments schedule is used.)

Accepted Answer

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Question 4

Which of the following procedures is acceptable when accounting for a deficit balance in a partner's capital account during partnership liquidation,if the partner with a negative capital balance is personally insolvent?

Accepted Answer

When a partner is insolvent and cannot cover their deficit, the remaining partners with positive balances absorb the deficit according to their profit and loss sharing ratios.

Question 5

-Using a safe payment schedule,how much cash should Lola receive in the first distribution?

Accepted Answer

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Question 6

In partnership liquidations,what are safe payments?

Accepted Answer

Safe payments in partnership liquidations refer to the distributions made to the partners without any risk of having to return them to the partnership later. These payments can only be made after all debts and liabilities of the partnership have been paid off, and all non-cash assets have been adjusted to their fair market value. Therefore, option B, which refers to payments that are assured not to be returned to the partnership, is the correct answer. Options A, C, and D are not safe payment options as they do not take into account the risk of having to return the distributions to the partnership.

Question 7

What is the proper disposition of a partnership loan that was made from a partner who has a debit balance in the capital account?

Accepted Answer

When a partner has a debit balance in the capital account, it means that the partner owes money to the partnership. If the partner then makes a loan to the partnership, it should be offset against the debit balance in the capital account to reduce or eliminate the amount owed. This is in line with the principle of maintaining the capital accounts in the partnership, which tracks each partner's contributions and withdrawals. Option A is incorrect, as the loan transaction should be recognized in the partnership's books. Option C is also incorrect, as charging off the loan to all partners' capital accounts would not reflect the specific contribution or withdrawal of each partner. Option D is not the best choice, as it is not prudent to delay payment of a loan indefinitely or until all other capital accounts are covered.

Question 8

The percentages shown are the residual profit and loss sharing ratios.The partners dissolved the partnership on July 1,2014,and began the liquidation process.During July the following events occurred:
 
-The cash available for distribution to the partners on July 31,2014 is

Accepted Answer

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Question 9

A simple partnership liquidation requires

Accepted Answer

In a simple partnership liquidation, the first priority is to pay off all outside creditors, and only then should the remaining cash be distributed to the partners. This ensures that all debts are settled before any profit is distributed amongst the partners. Therefore, choice B is the correct option as it emphasizes on paying off creditors before distributing cash to partners.

Question 10

Que,Rae,and Sye are in the process of liquidating their partnership.Sye has agreed to accept the inventory,which has a fair value of $60,000,as part of her settlement.A balance sheet and the residual profit and loss sharing percentages are as follows:  If the partners then distribute the available cash using a safe payments schedule,Sye will receive

Accepted Answer

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Question 11

-Using a safe payments schedule,how much cash should Melvin receive in the first distribution?

Accepted Answer

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Question 12

If conditions produce a debit balance in a partner's capital account when liquidation losses are allocated,then

Accepted Answer

If conditions produce a debit balance in a partner's capital account when liquidation losses are allocated, the partner has an obligation of personal net assets to the other partners. This means that the partner must contribute personal assets to the partnership to cover any remaining losses after the partnership assets have been exhausted. Therefore, the partner does not receive further allocations of liquidation losses or gains and is still obligated to partnership creditors.

Question 13

If all partners are included in the first installment of an installment liquidation,then in future installments

Accepted Answer

If all partners are included in the first installment of an installment liquidation, then in future installments, cash will be distributed according to the residual profit and loss sharing ratios. This is because the initial distribution would have already accounted for the initial entitlements of each partner based on their profit and loss sharing ratios. Therefore, any future distribution of cash should follow these ratios as well to ensure equitable distribution among the partners. Option B is incorrect because it assumes that there are non-cash assets remaining, which may not always be the case. Option C is also not relevant in this scenario, as vulnerability rankings are typically only used in the event of insolvency or liquidation that is not structured as an installment liquidation. Option D is also not necessary as the distribution plan would have been communicated during the initial installment distribution.

Question 14

Gains and losses incurred at liquidation are distributed to the partners using the residual profit and loss sharing ratios because

Accepted Answer

The residual profit and loss sharing ratios are used because they reflect how profits and losses from prior periods, which would have been shared according to these ratios, are to be distributed at liquidation. This ensures a fair and consistent distribution based on the partners' agreed-upon terms for sharing profits and losses during the partnership's operation.

Question 15

In partnership liquidation,how are partner salary allocations treated?

Accepted Answer

In partnership liquidation, partner salary allocations are disregarded. The focus is on settling debts with creditors and distributing any remaining assets according to the partners' capital accounts. Salaries or other allocations that might have been agreed upon during the partnership's operation are not considered in the liquidation process.

Question 16

The year-end balance sheet and residual profit and loss sharing percentages for the Gary,Harold,and Ivan partnership on December 31,2014,are as follows:  The partners agree to liquidate the business and distribute cash when it becomes available.A cash distribution plan is developed with vulnerability rankings for the Gary,Harold and Ivan partnership.After outside creditors are paid,the cash available will initially go to

Accepted Answer

According to the residual profit and loss sharing percentages, Harold is entitled to 50% of the residual profit or loss. Therefore, he would be entitled to receive the first $70,000 of available cash after outside creditors are paid. Gary is entitled to 30% of the residual profit or loss, so he would receive the next portion of available cash after Harold, which would be $20,000. Ivan is entitled to 20% of the residual profit or loss, so he would receive the remaining cash available after Harold and Gary. However, since the question only asks about the initial distribution of cash, the correct answer is C, which is the amount Harold would receive first.

Question 17

Which partner is considered the most vulnerable as a result of a computation of vulnerability rankings?

Accepted Answer

The partner who has the lowest loss absorption potential is considered the most vulnerable, as they have a lower ability to absorb losses in the partnership. Therefore, they are more likely to suffer negative consequences in case of any financial strain on the partnership.

Question 18

How much cash would Able receive from the cash that is available for distribution on July 31? (Assume a safe payments schedule is used.)

Accepted Answer

Able would receive $0 because the safe payments schedule ensures that cash is only distributed to partners who have positive capital balances after accounting for potential losses.

Question 19

In a schedule of assumed loss absorptions

Accepted Answer

In a schedule of assumed loss absorptions, the most vulnerable partner is eliminated first. This ensures that the partners with the highest risk exposure are protected first, and the remaining partners absorb the losses only in the event that the more vulnerable partners are unable to do so. The order of elimination is based on the level of vulnerability of each partner, rather than their cash distribution plan or their ranking in terms of loss absorption.

Question 20

Which statement is correct in describing the rank order of payments as specified by the Uniform Partnership Act?

Accepted Answer

According to the Uniform Partnership Act, payments to creditors other than partners are ranked ahead of payments to partners. This means that creditors have priority in receiving payments from the partnership before any payments are made to partners.

Quiz 17: Partnership Liquidation