advanced accounting baker test bank chap016 (1)

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.. The balance sheet given below is pres

Chapter 16 Partnerships: Liquidation

Multiple Choice Questions

1 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?

A X

B Y

C Z

D Both X and Y

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:

A $0

B $80,000

C $10,000

D $30,000

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?

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?

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

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?

10 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?

A $27,000

B $36,000

C $18,000

D $0

11 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?

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

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:

If you were to calculate the Loss Absorption Power for each partner, how would the partners rank (from highest to lowest LAP)?

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

A I only

B II only

C Both I and II

D Neither I nor II

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

20 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

A I

B II

C Both I and II

D Neither I nor II

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

A I and II

B I and III

C II and III

D I, II, and III

22 On a partner's personal statement of financial condition, how are assets valued?

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

24 Based on the preceding information, what amount will be paid out to Bill upon liquidation

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

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

27 Based on the preceding information, what amount will be paid out to Bill upon liquidation

30 When a partnership is liquidated on a piecemeal basis and cash has been distributed

properly to all partners as noncash assets have been turned into cash, all future cash

distributions should be made:

I In the profit and loss ratio

II According to the balances in the partners' capital accounts

A I only

B II only

C Both I and II

D Neither I nor II

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

A I only

B II only

C Either I or II

D Neither I nor II

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?

The trial balance of WM Partnership is as follows:

Wilfred and Mike decides to incorporate their partnership The partnership's books will be closed, and new books will be used for W & M 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 $10 par Wilfred and Mike receive a total of 10,000 shares

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

35 Based on the preceding information, the journal entry on the partnership's books to record the Investment in W&M Corporation Stock will be debited for:

A $181,000

B $131,000

C $200,000

D $150,000

36 Based on the preceding information, the journal entry on the partnership's books to record distribution of stock to prior partners will include a debit to Wilfred, Capital for:

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?

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:

Describe "Dissociation" and "Dissolution."

43 Listen and Hear are thinking of dissolving their partnership Listen has a friend who told him to complete a "lump-sum" liquidation Hear wants to complete an "installment" liquidation They have come to you for advice What do you recommend and Why?

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:

The partners share profits and losses in the ratio of 3:4:3 Partner B is personally insolvent, but partners A and C have sufficient personal assets to satisfy any capital deficits On March 15,

2009, the non-cash assets are sold for $550,000 Lump sum payments are made to the partners

on March 16, immediately after the creditors have been paid

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

Required:

Prepare a cash distribution plan as of September 30, 2009, showing how much cash each partner will receive if the offer to sell the assets is accepted

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

Required:

Prepare a statement of partnership realization and liquidation with supporting schedules of safe payments to partners

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) thetransfer 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

Chapter 16 Partnerships: Liquidation Answer Key

Multiple Choice Questions

1 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?

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:

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?

6 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?

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?

10 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?

11 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?

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

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

A I

B II

C Both I and II

D Neither I nor II

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:

If you were to calculate the Loss Absorption Power for each partner, how would the partners rank (from highest to lowest LAP)?

A B, I, G

B I, B, G

C B, G, I

D G, I, B

AACSB: Reflective Thinking

AICPA: Decision Making