Test bank advanced financial accounting 8th chap016

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.. During the liquidation of the

partnership, Janet should receive:

3 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?

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

13 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?

I Deficits created in capital accounts are distributed to the remaining partners

II All unsold noncash assets are assumed to be worthless

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

liquidate As a result of the information given,

A Partner L will have a smaller loss absorption power than A

B Partner L will receive cash only after A has received cash

C Partner A will have a smaller loss absorption power than L

D Partner A will never receive any cash from partnership liquidation

18 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

19 On a partner's personal statement of financial condition, how should liabilities be valued?

I As current and noncurrent

II In order of liquidity and maturity

21 The personal financial statements of a partner include which of the following?

I Statement of financial condition

II Statement of changes in net worth

III Statement of cash flows

25 Based on the preceding information, what amount will be paid out to Scott upon

liquidation of the partnership?

28 Based on the preceding information, what amount will be paid out to Scott upon

liquidation of the partnership?

distributions should be made:

I In the profit and loss ratio

II According to the balances in the partners' capital accounts

31 When is a partnership considered to be insolvent?

I When the total of all partners' capital accounts results in a debit balance

II When at least one of the partners is personally insolvent

I K's loss absorption power (LAP) was higher than J's LAP and L's LAP

II K's capital balance was substantially larger than the balances of J and L

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34 On December 31, 2008, Mr and Mrs Williams owned a parcel of land held as an

investment The land was purchased for $40,000 in 2006, and was encumbered by a mortgage with a principal balance of $30,000 at December 31, 2008 On this date the fair value of the land was $75,000 In the Williams' December 31, 2008, personal statement of financial condition, at what amount should the land investment and mortgage payable be reported?

2 All assets and liabilities are transferred to the corporation

3 The common stock is $10 par Wilfred and Mike receive a total of 10,000 shares

4 The partners share profits and losses in the ratio 7:3

The following condensed balance sheet is presented for the partnership of D, E, and F who share profits and losses in the ratio of 5:3:2, respectively:

The partners agreed to liquidate the partnership after selling the other assets

39 Refer to the above information If the other assets are sold for $280,000, how much should

F receive upon liquidation?

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41 The CRT partnership has decided to terminate operations and to liquidate the partnership assets There are no partner loans, and all partners have positive capital balances Gains and losses on liquidation and cash distributions to partners should be allocated as follows:

44 On March 1, 2009, the ABC partnership decides to complete a lump-sum liquidation as soon as possible The partnership balance sheet prepared on March 1 appears below:

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45 A personal statement of financial condition dated December 31, 2008, is to be prepared for Wilhelm Holz He provides the following information for your use in preparing the statements All amounts are as of December 31, 2008

1) Cash on hand and in bank is $4,000

2) Investments costing $30,000 have a market value of $78,000

3) His personal residence cost $150,000 ten years ago, and is currently worth $320,000 4) The payoff balance of his home mortgage is $80,000

5) The fair value of his 401(k) retirement account is $700,000 All withdrawals from the account will be fully taxable

6) Amounts due on credit card debt total $5,000

7) Estimated income taxes on his calendar 2008 earnings amount to $15,000 Taxes withheld

in 2008 were $14,000

8) Assume an income tax rate of 30 percent

Required: Prepare a statement of financial condition for Mr Holz as of December 31, 2008 Assume any gain on subsequent sale of the residence will not be tax-exempt

46 The partnership of Rachel, Adams, and Nixon has the following trial balance on

September 30, 2009:

The partners share profits and losses as follows: Rachel, 50 percent; Adams, 30 percent; and Nixon, 20 percent The partners are considering an offer of $180,000 for the accounts

receivable, inventory, and plant and equipment as of September 30 The $180,000 will be paid

to creditors and the partners in installments, the number and amounts of which are to be negotiated

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47 Refer to the facts in Question 46 The partners have decided to liquidate their partnership

by installments instead of accepting the offer of $180,000 Cash is distributed to the partners

at the end of each month A summary of the liquidation transactions follows:

October

1 $25,000 is collected on accounts receivable; balance is uncollectible

2 $20,000 received for the entire inventory

3 $1,500 liquidation expense paid

4 $40,000 paid to creditors

5 $10,000 cash retained in the business at the end of the month

November

6 $2,000 in liquidation expenses paid

7 As part payment of his capital, Nixon accepted an item of special equipment that he developed, which had a book value of $8,000 The partners agreed that a value of $12,000 should be placed on this item for liquidation purposes

8 $4,000 cash retained in the business at the end of the month

December

9 $150,000 received on sale of remaining plant and equipment

10 $1,000 liquidation expenses paid No cash retained in the business

48 When Disney and Charles decided to incorporate their partnership, the trial balance was as follows:

The partnership's books will be closed, and new books will be used for D & C Corporation The following additional information is available:

1 The estimated fair values of the assets follow:

2 All assets and liabilities are transferred to the corporation

3 The common stock is $5 par Alice and Betty receive a total of 24,000 shares

4 Disney and Charles share profits and losses in the ratio 6:4

Required

a Prepare the entries on the partnership's books to record (1) the revaluation of assets, (2) the transfer of the assets to the D & C Corporation and the receipt of the common stock, and (3) the closing of the books

b Prepare the entries on D & C Corporation's books to record the assets and the issuance of the common stock

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:

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3 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?

Each of the following are independent cases

4 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?

completed at the end of the second month

7 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?

12 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?

AACSB: Reflective Thinking

AICPA: Decision Making

13 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?

I Deficits created in capital accounts are distributed to the remaining partners

II All unsold noncash assets are assumed to be worthless

A I only

B II only

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15 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

AACSB: Reflective Thinking

AICPA: Decision Making

16 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:

AACSB: Reflective Thinking

AICPA: Decision Making

17 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,

A Partner L will have a smaller loss absorption power than A

B Partner L will receive cash only after A has received cash

C Partner A will have a smaller loss absorption power than L

D Partner A will never receive any cash from partnership liquidation

AACSB: Reflective Thinking

AICPA: Decision Making

18 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

AACSB: Reflective Thinking

AICPA: Decision Making

19. (p Appendix: A) On a partner's personal statement of financial condition, how should liabilities

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20. (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

AACSB: Reflective Thinking

AICPA: Decision Making

21. (p Appendix: A) The personal financial statements of a partner include which of the following?

I Statement of financial condition

II Statement of changes in net worth

III Statement of cash flows

AACSB: Reflective Thinking

AICPA: Decision Making

22. (p Appendix: A) On a partner's personal statement of financial condition, how are assets

AACSB: Reflective Thinking

AICPA: Decision Making

23. (p Appendix: A) On a partner's personal statement of changes in net worth, what type(s) of income is (are) recognized?

AACSB: Reflective Thinking

AICPA: Decision Making

Bill, Page, Larry, and Scott have decided to terminate their partnership The partnership's balance sheet at the time they decide to wind up is as follows:

During the winding up of the partnership, the other assets are sold for $150,000 and the accounts payable are paid Page and Larry are personally solvent, but Bill and Scott are personally insolvent The partners share profits and losses in the ratio of 4:2:1:3

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25 Based on the preceding information, what amount will be paid out to Scott upon

liquidation of the partnership?

Bill, Page, Larry, and Scott have decided to terminate their partnership The partnership's balance sheet at the time they decide to wind up is as follows:

During the winding up of the partnership, the other assets are sold for $150,000 and the accounts payable are paid Page and Larry are personally solvent, but Bill and Scott are personally insolvent The partners share profits and losses in the ratio of 3:2:1:4

28 Based on the preceding information, what amount will be paid out to Scott upon

liquidation of the partnership?

distributions should be made:

I In the profit and loss ratio

II According to the balances in the partners' capital accounts

AACSB: Reflective Thinking

AICPA: Decision Making

31 When is a partnership considered to be insolvent?

I When the total of all partners' capital accounts results in a debit balance

II When at least one of the partners is personally insolvent

AACSB: Reflective Thinking

AICPA: Decision Making

32 The computation of a safe installment payment for the XYZ partnership resulted in only partner Z receiving cash Which of the following statements is correct?

I Partner Z lent the partnership cash, and the partnership had to pay back the loan to Z before distributing cash to X and Y

II After assuming all noncash assets were potentially worthless and that assumed capital deficits created in X's and Y's capital balances were losses to be allocated to Z; Z's capital balance was the only capital balance left with a credit

AACSB: Reflective Thinking

AICPA: Decision Making

33 The JKL partnership liquidated its business in 2009 Due to an expected long liquidation period, a cash distribution plan was developed The initial sale and realization of cash from noncash assets resulted in partner K properly getting $24,000 No other partners received cash along with K Based upon this information, which of the following statements is correct?

I K's loss absorption power (LAP) was higher than J's LAP and L's LAP

II K's capital balance was substantially larger than the balances of J and L

AACSB: Reflective Thinking

AICPA: Decision Making