Chapter 15: Partnerships: Termination and Liquidation

Chapter 15: Partnerships: Termination and Liquidation



1. In a partnership liquidation, how is the final allocation of business assets made to the partners? A. equally
B. according to the profit and loss ratio
C. according to the balances of the partners' loan and capital accounts
D. according to the initial investments made by the partners
E. according to the method stipulated by the partnership agreement



2. A partnership is in the process of liquidating and is currently reporting the following capital balances.

Roberta has indicated that the $24,000 deficit will be covered by a forthcoming contribution. However, the two remaining partners have asked to receive the $116,000 in cash that is presently available. How much of this money should each partner be given? A. Marla = $65,000, Barbara = $51,000
B. Marla = $81,000, Barbara = $35,000
C. Marla = $58,000, Barbara = $58,000
D. Marla = $85,000, Barbara = $31,000
E. Marla = $72,000, Barbara = $44,000



3. A partnership is considering the possibility of liquidation because one of the partners, Stewart, is insolvent. Capital balances at the current time are as follows, and profits and losses are divided on a 6:3:1 basis, respectively.

Stewart's creditors have filed a $40,000 claim against the partnership's assets. The partnership currently holds assets reported at $300,000 and liabilities of $100,000. If the assets can be sold for $125,000, what is the minimum amount that Stewart's creditors would receive? A. $25,000
B. $26,000
C. $21,000
D. $30,000
E. $27,000



4. The following condensed balance sheet is for the partnership of Andrews, Carroll, and Murray, who share profits and losses in the ratio of 6:2:2, respectively.

Which partner is most vulnerable to a loss? A. Andrews
B. Carroll
C. Andrews and Carroll are equally vulnerable
D. Murray
E. Andrews and Murray are equally vulnerable



5. The following condensed balance sheet is for the partnership of Andrews, Carroll, and Murray, who share profits and losses in the ratio of 6:2:2, respectively.

If the other assets are sold for $80,000, how should the available cash be distributed? A. Andrews = $ 6,000, Carroll = $14,000, Murray = $ -0-
B. Andrews = $ 3,750, Carroll = $16,250, Murray = $ -0-
C. Andrews = $ 16,250, Carroll = $ 3,000, Murray = $ 750
D. Andrews = $ 3,750, Carroll = $13,250, Murray = $ 3,000
E. Andrews = $ 7,350, Carroll = $11,750, Murray = $ 900



6. Which one of the following statements is incorrect regarding a predistribution plan? A. A predistribution plan is developed by simulating a series of losses that are just large enough to eliminate, one at a time, all of the partners' claims to cash.
B. A predistribution plan recognizes that the individual capital accounts exhibit differing degrees of sensitivity to losses.
C. A predistribution plan serves as a guideline for all future cash payments in a liquidation.
D. A predistribution is prepared at the end of a liquidation to confirm actual cash distributions.
E. A series of absorbed losses forms the basis for the predistribution plan.



7. The following condensed balance sheet is for the Ashley, Bart, and Charles partnership. The partners share profits and losses in the ratio of 5:3:2, respectively.

The partners have decided to liquidate the business. Liquidation expenses are estimated to be $8,000. The other assets are sold for $180,000. What distribution can be made to the partners? A. Ashley = $14,000, Bart = $ 6,600, Charles = $ 6,400
B. Ashley = $ -0-, Bart = $ 8,200, Charles = $18,800
C. Ashley = $ 4,000, Bart = $ 6,400, Charles = $16,600
D. Ashley = $ -0-, Bart = $ 8,400, Charles = $18,600
E. Ashley = $ 4,500, Bart = $ 7,400, Charles = $15,100



8. A partnership has the following capital balances:

If the partnership is to be liquidated and $20,000 becomes immediately available, who gets the money? A. Monica = $ 5,000, Patricia = $ 3,000, Susan = $12,000
B. Monica = $ 7,000, Patricia = $ 8,000, Susan = $ 5,000
C. Monica = $ -0-, Patricia = $ 14,000, Susan = $ 6,000
D. Monica = $ 5,000, Patricia = $ 6,000, Susan = $ 9,000
E. Monica = $ 4,000, Patricia = $ 8,000, Susan = $ 8,000



9. To enable an orderly and fair distribution during liquidation, the Uniform Partnership Act establishes a priority listing for all claims. This ranking of claims is called the A. predistribution plan.
B. schedule of distribution.
C. schedule of liquidation.
D. schedule of termination.
E. marshaling of assets.



10. Stanley, a partner of the Newtown partnership, made a loan to the partnership. The partnership is now in liquidation. Which one of the following statements is incorrect regarding the status of this loan during the liquidation process? A. The loan must be repaid before any cash distribution is made to the other partners, even if Stanley does not have a sufficient amount of capital to absorb all possible losses.
B. The loan has a lower priority than obligations to outside creditors.
C. If the partner has a negative safe capital balance, a portion or even all of the loan should be retained as an offset against the capital account.
D. The loan is accounted for in liquidation as if it were a component of the partner's capital.
E. If Stanley is insolvent and reports a negative capital balance, the handling of the loan becomes significant.

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