Multiple-Choice Questions on Partnership Liquidations
Select the correct answer for each of the following questions.
Note: The following information is for questions 1, 2, and 3.
The balance sheet for the partnership of Joan, Charles, and Thomas, whose shares of profits and losses are 40, 50, and 10 percent, is as follows:
Cash | $ 50,000 | Accounts Payable | $150,000 |
Inventory | 360,000 | Joan, Capital | 160,000 |
|
| Charles, Capital | 45,000 |
|
| Thomas, Capital | 55,000 |
Total Assets | $410,000 | Total Liabilities and Equities | $410,000 |
Assume Charles is insolvent.
1. If the inventory is sold for $300,000, how much should Joan receive upon liquidation of the partnership?
a. $48,000.
b. $100,000.
c. $136,000.
d. $160,000.
2. If the inventory is sold for $180,000, how much should Thomas receive upon liquidation of the partnership?
a. $28,000.
b. $32,500.
c. $37,000.
d. $55,000.
3. The partnership will be liquidated in installments. As cash becomes available, it will be distributed to the partners. If inventory costing $200,000 is sold for $140,000, how much cash should be distributed to each partner at this time?
| Joan | Charles | Thomas |
a. | $56,000 | $70,000 | $14,000 |
b. | $16,000 | $20,000 | $ 4,000 |
c. | $32,000 | $ −0− | $ 8,000 |
d. | $20,000 | $ −0− | $20,000 |
4. In accounting for partnership liquidation, cash payments to partners after all creditors’ claims have been satisfied, but before the final cash distribution, should be according to
a. The partners’ relative profit and loss-sharing ratios.
b. The final balances in partner capital accounts.
c. The partners’ relative share of the gain or loss on liquidations.
d. Safe payments computations.
5. After all noncash assets have been converted into cash in the liquidation of the Adam and Kay Partnership, the ledger contains the following account balances:
| Debit | Credit |
Cash | $47,000 |
|
Accounts Payable |
| $32,000 |
Loan Payable to Adam |
| 15,000 |
Adam, Capital | 7,000 |
|
Kay, Capital |
| 7,000 |
Available cash should be distributed with $32,000 going to accounts payable and then
a. $15,000 to the loan payable to Adam.
b. $7,500eachtoAdamandKay.
c. $8,000 to Adam and $7,000 to Kay.
d. $7,000 to Adam and $8,000 to Kay.
Note: The following information is for questions 6 and 7.
F, A, S, and B are partners sharing profits and losses equally. The partnership is insolvent and is to be liquidated. The status of the partnership and each partner is as follows:
| Partnership Capital Balance | Personal Assets (exclusive of partnership interest) | Personal Liabilities (exclusive of partnership interest) |
F | $(15,000) | $100,000 | $40,000 |
A | (10,000) | 30,000 | 60,000 |
S | 20,000a | 80,000 | 5,000 |
B | 30,000a | 1,000 | 28,000 |
Total | $ 25,000a |
|
|
6. The partnership creditors
a. Must first seek recovery against S because she is personally solvent and has a negative capital balance.
b. Will not be paid in full regardless of how they proceed legally because the partnership assets are less than the partnership liabilities.
c. Will have to share A’s interest in the partnership on a pro rata basis with A’s personal creditors.
d. Have first claim to the partnership assets before any partner’s personal creditors have rights to the partnership assets.
7. The partnership creditors should seek recovery of their claims
a. From the partnership, including additional contributions from F and S.
b. From the personal assets of either F or A.
c. From the personal assets of either S or B.
d. From the personal assets of any of the partners for all or some of their claims.
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