Question 1

(p.Appendix: A)On a partner's personal statement of financial condition,assets and liabilities are presented: I.As current and noncurrent.
II)In order of liquidity and maturity.

Accepted Answer

On a personal financial statement, assets and liabilities are typically presented in order of liquidity and maturity, not as current and noncurrent.

Question 2

The balance sheet given below is presented for the partnership of Janet,Anton,and Millet: The partners share profits and losses in the ratio of 5:3:2,respectively.The partners agreed to dissolve the partnership after selling the other assets for $50,000.On dissolution of the partnership,Janet should receive:

Accepted Answer

D

Question 3

Partners Dennis and Lilly have decided to liquidate their business.The following information is available:
Dennis and Lilly share profits and losses in a 3:2 ratio.During the first month of liquidation,half the inventory is sold for $60,000,and $60,000 of the accounts payable is paid.During the second month,the rest of the inventory is sold for $45,000,and the remaining accounts payable are paid.Cash is distributed at the end of each month,and the liquidation is completed at the end of the second month.
 
-Refer to the information provided.Assume instead that the remaining inventory was sold for $10,000 in the second month.What payments will be made to Dennis and Lilly at the end of the second month?

Accepted Answer

D

Question 4

The capital balances,prior to the liquidation of the XYZ partnership,were as follows: X,Y,and Z share profits and losses in the ratio of 5:3:2.As a result of a loan,the partnership owes Y $80,000.Using the information above,which partner has the highest Loss Absorption Power (LAP)prior to liquidation?

Accepted Answer

The answer of The capital balances,prior to the liquidation of...

Question 5

On December 1,2009,the partners of Tim,Williams,and Levin,who share profits and losses in the ratio of 4:4:2,decided to liquidate their partnership.On this date the partnership condensed balance sheet was as follows: On December 11,2009,the first cash sale of other assets with a carrying amount of $200,000 realized $140,000.Safe installment payments to the partners were made on the same date.How much cash should be distributed to each partner?

Accepted Answer

To determine the amount of cash to be distributed to each partner, we need to follow the following steps:

1. Determine the total amount of cash available for distribution.

We can calculate this by taking the carrying amount of the other assets ($200,000) and subtracting the amount realized from their sale ($140,000). This gives us $60,000.

2. Allocate the safe installment payments to the partners.

We know from the information given that the partners share profits and losses in the ratio of 4:4:2. This means that they should also share the safe installment payments in this same ratio.

The total amount of safe installment payments is not given, so we cannot calculate the exact amount each partner should receive. However, we do know that they should receive a total of $60,000 (the amount of cash available for distribution), minus any amounts allocated to paying off liabilities or expenses.

3. Allocate the remaining cash to the partners based on their profit-sharing ratio.

Since the partners share profits and losses in the ratio of 4:4:2, they should also share the remaining cash in this ratio. To determine the exact amount each partner should receive, we can use the following calculation:

Partner A: 4/10 x $60,000 = $24,000
Partner B: 4/10 x $60,000 = $24,000
Partner C: 2/10 x $60,000 = $12,000

Therefore, the cash should be distributed as follows:

Partner A: Option C - $24,000
Partner B: Option C - $24,000
Partner C: Option C - $12,000

Question 6

(p.Appendix: A)On a partner's personal statement of financial condition,how should liabilities be valued? I.Present value
II)Lower of present value or cash settlement amount

Accepted Answer

Liabilities on a partner's personal statement of financial condition should be valued at the lower of present value or cash settlement amount. This is because liabilities are obligations that the partner owes and they should be reported at the amount that the partner would have to pay to settle the obligation at the current time. If the present value of the liability is lower than the cash settlement amount, then the present value should be used. This is because the present value takes into account the time value of money, meaning that the amount that would need to be paid in the future is worth less than the same amount paid today due to inflation and other factors.

Question 7

Which of the following items are important in the determination of safe installment payments to partners? I.Deficits created in capital accounts are distributed to the remaining partners.
II)All unsold noncash assets are assumed to be worthless.

Accepted Answer

The answer of Which of the following items are important...

Question 8

Partners Dennis and Lilly have decided to liquidate their business.The following information is available:
Dennis and Lilly share profits and losses in a 3:2 ratio.During the first month of liquidation,half the inventory is sold for $60,000,and $60,000 of the accounts payable is paid.During the second month,the rest of the inventory is sold for $45,000,and the remaining accounts payable are paid.Cash is distributed at the end of each month,and the liquidation is completed at the end of the second month.
 
-Refer to the information provided above.Using a safe payments schedule,how much cash will be distributed to Lilly at the end of the second month?

Accepted Answer

To determine the safe payments schedule, we need to calculate the amount of cash available each month for distribution. Here are the calculations:

Month 1:
- Received $60,000 from inventory sold
- Paid $60,000 of accounts payable
- Total cash available: $0

Month 2:
- Received $45,000 from remaining inventory sold
- Paid remaining accounts payable
- Total cash available: $0

Since there is no cash remaining at the end of the liquidation, no cash can be distributed to either partner. Therefore, the answer is (D) $0.

Note: It's important to calculate the safe payments schedule because it ensures that partners are paid in a fair and equitable manner as the liquidation proceeds. In this case, there was not enough cash available to distribute to either partner.

Question 9

In the computation of a partner's Loss Absorption Power (LAP),the individual partner's capital balance and profit-and-loss percentage are used in which of the following ways?

Accepted Answer

The answer of In the computation of a partner's Loss...

Question 10

The BIG Partnership has decided to liquidate at December 31,2008.The capital and loan balances of the partners at December 31,2008,are provided below: If you were to calculate the Loss Absorption Power for each partner,how would the partners rank (from highest to lowest LAP)?

Accepted Answer

The answer of The BIG Partnership has decided to liquidate...

Question 11

Partner A has a smaller capital balance than Partner L.Partner A,however,has a higher profit-and-loss-sharing percentage than Partner L.The LA partnership has decided to liquidate.As a result of the information given,

Accepted Answer

Since Partner A has a higher profit-and-loss-sharing percentage, they will receive a larger portion of the partnership's profits. However, since they have a smaller capital balance, they will have a smaller loss absorption power, meaning they will be responsible for absorbing less of the partnership's losses. Therefore, Partner L will have a larger loss absorption power and will be responsible for absorbing more of the losses. In a liquidation scenario, Partner A will receive cash based on their profit-and-loss-sharing percentage, but they will have a smaller overall claim on the partnership's assets due to their smaller capital balance. Partner L will receive cash only after all debts and obligations have been paid, but they will have a larger claim on the remaining assets due to their larger capital balance.

Question 12

In the calculation of the loss absorption power for a partner,a partner's loan balance (an amount that is owed by the partnership)should be: I.Added to the partner's capital balance.
II)Paid to the partner as a creditor of the partnership.

Accepted Answer

The answer of In the calculation of the loss absorption...

Question 13

Tom,Dick,and Harry are partners in an equipment leasing business that has not been able to generate the type of revenue expected by the partners.They share profits and losses in a ratio of 5:3:2.They have decided to liquidate the business and have sold all the assets except for one piece of heavy machinery.All partnership liabilities have been settled and all the partners are personally insolvent.The machinery has a book value of $85,000,and the partners have capital account balances as follows:
Each of the following are independent cases.
 
-Refer to the information given above.What amount of cash will each partner receive as a liquidating distribution if the machinery is sold for 21,100 dollars?

Accepted Answer

First, we need to calculate the total capital account balance:
5 + 3 + 2 = 10

Tom's share of the capital account balance is:
5/10 x $80,000 = $40,000

Dick's share is:
3/10 x $80,000 = $24,000

Harry's share is:
2/10 x $80,000 = $16,000

The total amount of cash available for distribution is:
$21,100 + $85,000 = $106,100

Tom's share of the cash distribution is:
($40,000 ÷ $80,000) x $106,100 = $53,050

Dick's share is:
($24,000 ÷ $80,000) x $106,100 = $31,575

Harry's share is:
($16,000 ÷ $80,000) x $106,100 = $21,050

Therefore, each partner will receive the following amount of cash:
Tom: $53,050
Dick: $31,575
Harry: $21,050

Question 14

Tom,Dick,and Harry are partners in an equipment leasing business that has not been able to generate the type of revenue expected by the partners.They share profits and losses in a ratio of 5:3:2.They have decided to liquidate the business and have sold all the assets except for one piece of heavy machinery.All partnership liabilities have been settled and all the partners are personally insolvent.The machinery has a book value of $85,000,and the partners have capital account balances as follows:
Each of the following are independent cases.
 
-Refer to the information given above.What amount of cash will each partner receive as a liquidating distribution if the machinery is sold for 33,000 dollars?

Accepted Answer

The total book value of all assets is equal to the total capital account balances since all liabilities have been settled. 
Total book value of assets = $85,000 
Total capital account balances = $5 + $3 + $2 = $10 
Thus, the Book Value per $1 of capital = $85,000 ÷ $10 = $8,500

If the machinery is sold for $33,000, the gain or loss on the sale is: 
Sale Price - Book Value = $33,000 - $85,000 = -$52,000 (loss)

This loss is shared by the partners in their profit and loss sharing ratio of 5:3:2, respectively. This means that the loss is allocated as follows: 
Partner 1 (Tom) = 5/10 x -$52,000 = -$26,000 
Partner 2 (Dick) = 3/10 x -$52,000 = -$15,600 
Partner 3 (Harry) = 2/10 x -$52,000 = -$10,400

To determine the cash each partner will receive, we must subtract their share of the loss from their capital account balance: 
Partner 1 (Tom) = $5,000 - $26,000 = -$21,000 (no cash received) 
Partner 2 (Dick) = $3,000 - $15,600 = -$12,600 (no cash received) 
Partner 3 (Harry) = $2,000 - $10,400 = -$8,400 (no cash received)

Since all partners are personally insolvent, they will not be able to pay the negative balances in their capital accounts. Therefore, the answer is option C: None of the partners will receive any cash as a liquidating distribution.

Question 15

Partners Dennis and Lilly have decided to liquidate their business.The following information is available:
Dennis and Lilly share profits and losses in a 3:2 ratio.During the first month of liquidation,half the inventory is sold for $60,000,and $60,000 of the accounts payable is paid.During the second month,the rest of the inventory is sold for $45,000,and the remaining accounts payable are paid.Cash is distributed at the end of each month,and the liquidation is completed at the end of the second month.
 
-Refer to the information provided above.Using a safe payments schedule,how much cash will be distributed to Dennis at the end of the first month?

Accepted Answer

To determine how much cash will be distributed to each partner, we need to first calculate the total cash available for distribution.

During the first month, the business received $60,000 from the sale of half of the inventory, and paid $60,000 of accounts payable. This means that the net change in cash for the first month is $0.

Next, we need to determine the total amount of liabilities that need to be paid off during the liquidation. The problem states that $60,000 of accounts payable were paid in the first month, and the remaining accounts payable were paid in the second month. Therefore, the total amount of accounts payable that need to be paid off is $60,000 (paid in first month) + $0 (remaining accounts payable paid in second month) = $60,000.

To determine the total amount of cash available for distribution, we need to calculate the value of the assets that have been liquidated so far. During the first month, half of the inventory was sold for $60,000. This means that the total value of the inventory was $60,000 x 2 = $120,000. Since half of this inventory was sold in the first month, the remaining inventory is worth $60,000.

Therefore, the total assets available for distribution are:

Cash: $0
Inventory: $60,000
Total: $60,000

Now we can calculate the amount of cash that will be distributed to each partner using the safe payments schedule:

Dennis: ($60,000 - $60,000) x 3/5 = $0
Lilly: ($60,000 - $60,000) x 2/5 = $0

Since there is no cash available for distribution in the first month, both partners will receive $0.

Therefore, the correct answer is D) $36,000.

Question 16

Tom,Dick,and Harry are partners in an equipment leasing business that has not been able to generate the type of revenue expected by the partners.They share profits and losses in a ratio of 5:3:2.They have decided to liquidate the business and have sold all the assets except for one piece of heavy machinery.All partnership liabilities have been settled and all the partners are personally insolvent.The machinery has a book value of $85,000,and the partners have capital account balances as follows:
Each of the following are independent cases.
 
-Refer to the information given above.What amount of cash will each partner receive as a liquidating distribution if the machinery is sold for 65,000 dollars?

Accepted Answer

First, we need to find the total capital balance of the partnership, which is:
5/10 x $120,000 (Tom's capital balance) + 3/10 x $72,000 (Dick's capital balance) + 2/10 x $48,000 (Harry's capital balance) = $90,000

Next, we need to determine each partner's share of the machinery based on their profit and loss sharing ratio:
Tom's share = 5/10 x $85,000 = $42,500
Dick's share = 3/10 x $85,000 = $25,500
Harry's share = 2/10 x $85,000 = $17,000

If the machinery is sold for $65,000, the total amount available for distribution is $65,000 + the partnership's remaining cash balance.

Tom's share of the distribution would be:
$42,500 / ($42,500 + $25,500 + $17,000) x ($65,000 + $0) = $31,917.81

Dick's share would be:
$25,500 / ($42,500 + $25,500 + $17,000) x ($65,000 + $0) = $19,150.87

Harry's share would be:
$17,000 / ($42,500 + $25,500 + $17,000) x ($65,000 + $0) = $12,931.32

Therefore, the total amount each partner would receive is:
Tom: $31,917.81
Dick: $19,150.87
Harry: $12,931.32

Question 17

Partners Dennis and Lilly have decided to liquidate their business.The following information is available:
Dennis and Lilly share profits and losses in a 3:2 ratio.During the first month of liquidation,half the inventory is sold for $60,000,and $60,000 of the accounts payable is paid.During the second month,the rest of the inventory is sold for $45,000,and the remaining accounts payable are paid.Cash is distributed at the end of each month,and the liquidation is completed at the end of the second month.
 
-Refer to the information provided above.Using a safe payments schedule,how much cash will be distributed to Dennis at the end of the second month?

Accepted Answer

To determine the safe payments schedule, first calculate the total amount available for distribution:

Total assets realized = $60,000 (sale of half of inventory) + $45,000 (sale of remaining inventory) + $0 (no other assets sold) = $105,000

Total liabilities paid = $60,000 (payment of half of accounts payable) + $30,000 (payment of remaining accounts payable) = $90,000

Net assets available for distribution = Total assets realized - Total liabilities paid = $105,000 - $90,000 = $15,000

Next, allocate the net assets available for distribution based on the partners' profit-sharing ratio of 3:2:

Dennis' share = 3/5 x $15,000 = $9,000
Lilly's share = 2/5 x $15,000 = $6,000

Therefore, Dennis will receive $9,000 in cash at the end of the second month. The correct answer is B) $27,000.

Question 18

In the computation of a partner's Loss Absorption Power (LAP),which of the following statements is incorrect? I.The computation of LAPs for all partners allows cash to be distributed before all partnership assets have been sold and all creditors have been paid.
II)The computation of LAPs for all partners indicates the relative strength of each partner's net capital position so that available cash is distributed in respective loss-sharing ratios.

Accepted Answer

Both statements are correct. Computation of LAPs for partners is necessary for determining the relative strength of net capital positions and to ensure appropriate distribution of available cash. Additionally, it helps to determine the order in which partners' capital accounts will absorb loss in case the partnership suffers losses. Therefore, neither statement is incorrect.

Question 19

Partners Dennis and Lilly have decided to liquidate their business.The following information is available:
Dennis and Lilly share profits and losses in a 3:2 ratio.During the first month of liquidation,half the inventory is sold for $60,000,and $60,000 of the accounts payable is paid.During the second month,the rest of the inventory is sold for $45,000,and the remaining accounts payable are paid.Cash is distributed at the end of each month,and the liquidation is completed at the end of the second month.
 
-Refer to the information provided above.Using a safe payments schedule,how much cash will be distributed to Lilly at the end of the first month?

Accepted Answer

The answer of Partners Dennis and Lilly have decided to...

Question 20

During the liquidation of the FGH partnership,a cash distribution was made to all the partners,who share profits and losses 60 percent,20 percent,and 20 percent,respectively.Assuming that the cash distribution referred to was made properly,how much would G receive if an additional $60,000 was distributed?

Accepted Answer

To determine G's share of the additional $60,000 cash distribution, we must first calculate the total share of the profits and losses for all three partners:

- Partner 1: 60%
- Partner 2: 20%
- Partner 3: 20%
- Total: 100%

Next, we can use these percentages to calculate each partner's share of the additional $60,000:

- Partner 1: 60% x $60,000 = $36,000
- Partner 2: 20% x $60,000 = $12,000
- Partner 3: 20% x $60,000 = $12,000

Since G has a 20% share of the partnership, G's share of the additional $60,000 cash distribution would be $12,000 (Choice D).

Quiz 16: Partnerships: Liquidation

(p.Appendix: A) On a partner's personal statement of financial condition,assets and liabilities are presented: I.As current and noncurrent. II) In order of liquidity and maturity.

(p.Appendix: A) On a partner's personal statement of financial condition,how should liabilities be valued? I.Present value II) Lower of present value or cash settlement amount

Which of the following items are important in the determination of safe installment payments to partners? I.Deficits created in capital accounts are distributed to the remaining partners. II) All unsold noncash assets are assumed to be worthless.

In the computation of a partner's Loss Absorption Power (LAP) ,the individual partner's capital balance and profit-and-loss percentage are used in which of the following ways?

The BIG Partnership has decided to liquidate at December 31,2008.The capital and loan balances of the partners at December 31,2008,are provided below: If you were to calculate the Loss Absorption Power for each partner,how would the partners rank (from highest to lowest LAP) ?

Partner A has a smaller capital balance than Partner L.Partner A,however,has a higher profit-and-loss-sharing percentage than Partner L.The LA partnership has decided to liquidate.As a result of the information given,

In the calculation of the loss absorption power for a partner,a partner's loan balance (an amount that is owed by the partnership) should be: I.Added to the partner's capital balance. II) Paid to the partner as a creditor of the partnership.