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Chapter 16 Test Bank Dissolution and Liquidation of A Partnership
Chapter 16 Test Bank Dissolution and Liquidation of A Partnership
Chapter 16 Test Bank Dissolution and Liquidation of A Partnership
LO1
1. Which statement is correct in describing the rank order of
payments as specified by the Uniform Partnership Act?
LO1
2. Which of the following procedures is acceptable when accounting
for a deficit balance in a partner’s capital account during
partnership liquidation?
LO1
4. A partnership in liquidation has converted all assets into cash
and paid all liabilities. According to the Uniform Partnership
Act, the order of payment
LO1
6. A simple partnership liquidation requires
LO2
7. In a simple partnership liquidation, the last remaining cash
distribution should be made according to the ratio of
LO2
8. If conditions produce a debit balance in a partner’s capital
account when liquidation losses are allocated
On June 30, 2006, the Warle, Xin, and Yates partnership had the
following fiscal year-end balance sheet:
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:
LO2
9. The book value of the partnership equity (i.e., total equity of
the partners) on June 30, 2006 is
a. $60,000.
b. $29,000.
c. $30,000.
d. $42,000.
LO2
10. 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.
LO2
11. 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.
LO2
12. 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:
a. $146,000.
b. $147,000.
©2009 Pearson Education, Inc. publishing as Prentice Hall
16-4
c. $153,000.
d. $156,000
LO2
13. 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:
a. $23,000.
b. $29,000
c. $30,000.
d. $34,000.
LO2
14. Under the rule of offset, what is the proper disposition of a
partnership loan that was made from a partner who has a debit
balance?
LO4
16. If all partners are included in the first installment of an
installment liquidation, then in future installments
LO5
17. 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:
LO5
18. In a schedule of assumed loss absorptions
LO5
19. Which partner is considered the most vulnerable as a result of
a computation of vulnerability rankings?
LO6
20. The rank order is for claims against a bankrupt partner of
Required:
LO2
Exercise 2
The partnership of Dale, Edgar, and Fred was dissolved, and by July
1, 2006, all assets had been converted into cash and all partnership
liabilities were paid. The partnership balance sheet on July 1, 2006
(with partner residual profit and loss sharing percentages) was as
follows:
Required:
Required:
LO2
Exercise 4
A cash distribution plan for the Folger, Glover, and Hale partnership
was as follows:
Priority
Creditors Folger Glover Hale
First $250,000 100%
Next $100,000 70% 30%
Next $150,000 11/15 4/15
Remainder 20% 35% 45%
Required:
The balance sheet of the Jody, Kane, and Lark partnership on May 1,
2006 (before commencement of partnership liquidation) was as follows:
Required:
Determine how the available cash on April 30, 2006 should be distributed.
LO2
Exercise 6
The balance sheet of the Nebe, Oak, and Pang partnership on October
1, 2006 (the date of partnership dissolution) was as follows:
In October, other assets with a book value of $15,000 were sold for
$17,000 in cash.
Required:
Required:
Luis, Mac, Nel, and Oma are partners who share profits and losses
40%, 25%, 25%, and 10%, respectively. The partnership will be
liquidated gradually over several months beginning January 1, 2006.
The partnership trial balance at December 31, 2005 is as follows:
Debits Credits
Cash $ 3,000
Accounts receivable 19,000
Inventory 25,000
Loan to Nel 5,000
Furniture 15,000
Equipment 10,000
Goodwill 12,000
Accounts payable $ 14,000
Note payable 30,000
Loan from Luis 5,000
Luis, capital (40%) 15,000
Mac, capital (25%) 9,000
Nel, capital (25%) 12,000
Oma, capital (10%) 4,000
Totals $ 89,000 $ 89,000
Required:
Quan, Ray, Sen, and Tad are partners who share profits and losses 30%, 20%,
35%, and 15%, respectively. The partnership will be liquidated gradually
over several months beginning January 1, 2006. The partnership trial
balance at December 31, 2005 is as follows:
Debits Credits
Cash $ 3,000
Accounts receivable 10,000
Inventory 25,000
Loan to Ray 4,000
Furniture 15,000
Equipment 18,000
Goodwill 10,000
Accounts payable $ 12,000
Note payable 30,000
Loan from Sen 6,000
Quan, capital (30%) 12,000
Ray, capital (20%) 9,000
Sen, capital (35%) 12,000
Tad, capital (15%) 4,000
Totals $ 85,000 $ 85,000
Required:
LO5
Exercise 10
Priority
Creditors Upton Valenta Walker
First $100,000 100%
Next $180,000 44% 10% 46%
Next $270,000 2/9 1/9 2/3
Remainder 11% 44% 45%
Required:
1. c
2. c
3. a
4. c
5. d
6. b
7. a
8. d
11. d
Possible losses on
remaining assets ( 3,000 ) ( 4,500 ) ( 7,500 ) ( 15,000 )
Subtotals $ 2,600 $ 6,900 $( 7,500 ) $ 2,000
Eliminate Yates’s
Deficit ( 3,000 ) ( 4,500 ) 7,500
Subtotals ( 400 ) 2,400 0 2,000
Eliminate Warle’s
Deficit 400 ( 400 )
Cash distribution $ 0 $ 2,000 $ 0 $ 2,000
Eliminate Jack’s
debit balance ( 8,000 ) ( 6,000 ) 14,000
13. a
14. b
15. b
16. a
Vulnerability ranks:
Lang equity ($70,000 - $40,000)/.25 = $120,000 = 1
Maas equity ($80,000 + $50,0000/.25 = $520,000 = 3
Neal equity ($150,000/.5) = $300,000 = 2
Loss to eliminate
Neal ( 45,000 ) ( 90,000 ) ( 135,000 )
Subtotals $ 55,000 $ 0 $ 55,000
18. d
19. a
20. d
Exercise 3
Priority
Creditors Folger Glover Hale
First $250,000 $ 250,000
Next $100,000 $ 70,000 $ 30,000
Next $150,000 110,000 $ 40,000
Last $350,000 70,000 122,500 157,500
Total $850,000 $ 250,000 $ 250,000 $ 152,500 $ 197,500
Exercise 5
Profit Loss
Partners’ and Loss Absorption Vulnerability
Equity Ratio Potential Ranking
Luis $ 20,000 40% $ 50,000 4
Mac 9,000 25% $ 36,000 2
Nel 7,000 25% $ 28,000 1
Oma 4,000 10% $ 40,000 3
Profit Loss
Partners’ and Loss Absorption Vulnerability
Equity Ratio Potential Ranking
Quan $ 12,000 30% $ 40,000 3
Ray 5,000 20% $ 25,000 1
Sen 18,000 35% $ 51,429 4
Tad 4,000 15% $ 26,667 2
Exercise 10
Priority
Creditors Upton Valenta Walker
First $100,000 $ 100,000
Next $180,000 $ 79,200 $ 18,000 $ 82,800
Next $270,000 60,000 30,000 180,000
Last $150,000 16,500 66,000 67,500
Total $700,000 $ 100,000 $ 155,700 $ 114,000 $ 330,300