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120273494 Acctg 2 Quiz - Lecture notes 1-2

Accountancy (Baliuag University)

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Partnership Liquidation

1. Which statement is correct in describing the rank order of payments?

a. Payments to partners with loans to the partnership are ranked equally with
payments to other creditors.
b. Payments to partners with loans to the partnership are ranked ahead of
payments to partners without loans to the partnership.
c. Payments to other creditors are ranked ahead of payments to partners with
loans to the partnership.
d. After payments are made to other creditors and partners with loans to the
partnership, payment can be made to partners with capital interests.

2. Which of the following procedures is acceptable when accounting for a deficit

balance in a partner’s capital account during partnership liquidation?

a. A partner with a negative capital balance must contribute personal assets to

the partnership that are sufficient to bring the capital account to zero.
b. If a partner with a negative capital balance is personally insolvent, the
negative capital balance may be absorbed by those partners having a
positive capital balance according to the residual profit and loss sharing
ratios that apply to all the partners.
c. If a partner with a negative capital balance is personally insolvent, the
negative capital balance may be absorbed by those partners having a
positive capital balance according to the residual profit and loss sharing
ratios that apply to those partners having positive balances.
d. All the above procedures are acceptable.

3. A partnership dissolution differs from a liquidation in that

a. payments are made to creditors before partners receive value.

b. periodic payments to partners are made when cash becomes available.
c. a partner withdraws from the business and the enterprise continues to
function.
d. full payment is made to all outside creditors before remaining cash is
distributed to partners in a final lump sum payment.

4. A partnership in liquidation has converted all assets into cash and paid all
liabilities. The order of payment

a. will have amounts due to partners with respect to their capital accounts take
precedence over amounts owed by partners other than for capital and
profits.
b. will be according to the partners’ residual profit and loss sharing ratios.
c. will have amounts owed by partners other than for capital and profits take
precedence over amounts due to partners with respect to their capital
accounts.
d. Will be by any manner that is both reasonable and rational for the
partnership.

5. In partnership liquidation, how are partner salary allocations treated?

a. Salary allocations take precedence over creditor payments.

b. Salary allocations take precedence over amounts due to partners with
respect to their capital interests, but not profits.
c. Salary allocations take precedence over amounts due to partners with
respect to their capital profits, but not capital interests.
d. Salary allocations are disregarded.

6. A simple partnership liquidation requires

a. periodic payments to creditors and partners determined by a safe payments

schedule.
b. partnership assets to be converted into cash with full payment made to all
outside creditors before remaining cash is distributed to partners in a lump
sum payment.
c. only creditors to be paid in an orderly manner.
d. periodic payments to partners as cash becomes available.

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Partnership Liquidation

7. In a simple partnership liquidation, the last remaining cash distribution should be

made according to the ratio of

a. the individual partner’s profit and loss agreement.

b. the individual partner's capital accounts, increased by partner loans to the
partnership.
c. the individual partner’s capital accounts, increased by partnership loans to
the partners and decreased by partner loans to the partnership.
d. the individual partner’s capital accounts, decreased by partnership loans to
the partners and increased by partner loans to the partnership.

8. In partnership liquidations, what are safe payments?

a. The amounts of distributions that can be made to the partners, after all
creditors have been paid in full.
b. The amounts of distributions that can be made to the partners with
assurance that such amounts will not have to be returned to the partnership.
c. The amounts of distributions that can be made to the partners, after all non-
cash assets have been adjusted to fair market value.
d. All the above are examples of the safe payments concept.

9. If all partners are included in the first installment of an installment liquidation,

then in future installments

a. cash will be distributed according to the residual profit and loss sharing ratio.
b. cash should not be distributed until all non-cash assets are converted into
cash.
c. a safe payments schedule must be prepared before each cash distribution to
avoid excessive payments to partners.
d. a cash distribution plan must be prepared so that partners will know when
they will be included in cash distributions.

10. In a schedule of assumed loss absorptions

a. the partner with lowest loss absorption is eliminated last.

b. it is necessary to have a cash distribution plan first.
c. the least vulnerable partner is eliminated first.
d. the most vulnerable partner is eliminated first.

11. Which partner is considered the most vulnerable as a result of a computation of

vulnerability rankings?

a. The partner with the lowest vulnerability ranking, who also has the lowest
loss absorption potential.
b. The partner with the lowest vulnerability ranking, who also has the highest
loss absorption potential.
c. The partner with the highest vulnerability ratio, who also has the lowest loss
absorption potential.
d. The partner with the highest vulnerability ranking, who also has the highest
loss absorption potential.

12. The rank order is for claims against a bankrupt partner of

I. Those owing to partners by way of contribution

II.Those owing to separate creditors
III.Those owing to partnership creditors

a. II first; I second and III third.

b. III first; II second and I third.
c. I first; III second and II third.
d. II first; III second and I third.

13. If conditions produce a debit balance in a partner’s capital account when

liquidation losses are allocated

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Partnership Liquidation

a. the partner receives further allocations of liquidation losses, but not gains.
b. the partner receives no further allocation of liquidation losses and gains.
c. the partner is no longer obligated to partnership creditors.
d. the partner has an obligation of personal net assets to the other partners.

Use the following information for questions 14, 15 and 16.

On June 30, 2006, the Warle, Xin, and Yates partnership had the following fiscal year-end
balance sheet:

Cash $ 4,000 Accounts payable $ 7,000

Accounts receivable 6,000 Loan from Xin 5,000
Inventory 14,000 Warle, capital(20%) 14,000
Plant assets-net 12,000 Xin, capital(30%) 10,000
Loan to Warle 6,000 Yates, capital(50%) 6,000
Total assets $ 42,000 Total liab./equity $ 42,000

The percentages shown are the residual profit and loss sharing ratios. The partners
dissolved the partnership on July 1, 2006,. and began the liquidation process. During July
the following events occurred:

* Receivables of $3,000 were collected.

* The inventory was sold for $4,000.
* All available cash was distributed on
July 31, except for $2,000 that was set aside for
contingent expenses.

14. The book value of the partnership capital on June 30, 2006 is

a. $60,000.
b. $29,000.
c. $30,000.
d. $42,000.

15. The cash available for distribution to the partners on July 31, 2006 is

a. $ 2,000.
b. $ 4,000.
c. $ 7,000.
d. $11,000.

16. How much cash would Xin receive from the cash that is available for distribution
on July 31?

a. $ 0.
b. $ 600.
c. $1,000.
d. $2,000.

17. Hara, Ives, and Jack are in the process of liquidating their partnership. Since it may
take several months to convert the other assets into cash, the partners agree to
distribute all available cash immediately, except for $10,000 that is set aside for
contingent expenses. The balance sheet and residual profit and loss sharing
percentages are as follows:

Cash $ 400,000 Accounts payable $ 200,000

Other assets 200,000 Hara, capital (40%) 135,000
Ives, capital (30%) 216,000
Jack, capital (30%) 49,000

Total assets $ 600,000 Total liab./equity $ 600,000

How much cash should Ives receive in the first distribution?

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Partnership Liquidation

a. $146,000.
b. $147,000.
c. $153,000.
d. $156,000

18. Jade, Kahl, and Lane are in the process of liquidating their partnership. Lane 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:

Cash $ 198,000 Accounts payable $ 149,000

Inventory 80,000 Jade, capital (40%) 79,000
Plant assets 230,000 Kahl, capital (40%) 140,000
Lane, capital (20%) 140,000

Total assets $ 508,000 Total liab./equity $ 508,000

If the partners then distribute the available cash, Lane will receive

a. $23,000.
b. $29,000
c. $30,000.
d. $34,000.

19. The year-end balance sheet and residual profit and loss sharing percentages for
the Lang, Maas, and Neal partnership on December 31, 2005, are as follows:

Cash $ 30,000 Accounts payable $ 200,000

Loan to Lang 40,000 Loan from Maas 50,000
Other assets 480,000 Lang, capital (25%) 70,000
Maas, capital (25%) 80,000
Neal, capital (50%) 150,000
Total assets $ 550,000 Total liab./equity $ 550,000

The partners agree to liquidate the business and distribute cash when it becomes
available. A cash distribution plan for the Lang, Maas, and Neal partnership will
show that cash available, after outside creditors are paid, will initially go to

a. Lang in the amount of $20,000.

b. Maas in the amount of $45,000.
c. Maas in the amount of $55,000.
d. Neal in the amount of $90,000.

Answers: C,C,A,C,D,B,A,B,A,C,A,D,D,B,A,D,B,A,C

PSALM 145:14

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