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38. TheBIGPartnershiphasdecidedtoliquidateatDecember31,20X8.

The
capitalandloanbalancesofthepartnersatDecember31,20X8,are
provided

below:
IfyouweretocalculatetheLossAbsorptionPowerforeachpartner,howwouldthepartnersrank(from
highesttolowestLAP)?
A. B,I,G
B. I,B,G
C. B,G,I
D. G,I,B
39. PartnerAhasasmallercapitalbalancethanPartnerL.PartnerA,however,hasahigherprofit
andlosssharingpercentagethanPartnerL.TheLApartnershiphasdecidedtoliquidate.Asa
resultoftheinformationgiven,
A. PartnerLwillhaveasmallerlossabsorptionpowerthanA.
B. PartnerLwillreceivecashonlyafterAhasreceivedcash.
C. PartnerAwillhaveasmallerlossabsorptionpowerthanL.
D. PartnerAwillneverreceiveanycashfrompartnershipliquidation.
40. Whichofthefollowingstatementsis(are)true?
I. Inthecalculationofthelossabsorptionpowerforapartner,apartner'sloanbalance(an
amountthatisowedbythepartnership)shouldbeaddedtothepartner'scapitalbalance.
AI. Inliquidation,apartner'sloanbalance(anamountthatisowedbythepartnership)should
bepaidtothepartnerasacreditorofthepartnershipaftertheoutsidecreditors.
A. Ionly
B. IIonly
C. BothIandII
D. NeitherInorII
41. Whenapartnershipisliquidatedonapiecemealbasisandcashhasbeendistributedproperlyto
allpartnersasnoncashassetshavebeenturnedintocash,allfuturecashdistributionsshouldbe
made:
I. Intheprofitandlossratio.
AI. Accordingtothebalancesinthepartners'capitalaccounts.
A. Ionly
B. IIonly
C. BothIandII
D. NeitherInorII
42. The computation ofa safe installment payment forthe XYZ partnership resulted in only
partnerZreceivingcash.Whichofthefollowingstatementsiscorrect?
I. PartnerZlentthepartnershipcash,andthepartnershiphadtopaybacktheloantoZbeforedistributing
cashtoXandY.
AI. Afterassumingallnoncashassetswerepotentiallyworthlessandthatassumedcapitaldeficits
createdinX'sandY'scapitalbalanceswerelossestobeallocatedtoZ;Z'scapitalbalance
wastheonlycapitalbalanceleftwithacredit.
A. Ionly
B. IIonly
C. EitherIorII
D. NeitherInorII

43. TheJKLpartnershipliquidateditsbusinessin20X9.Duetoanexpectedlongliquidationperiod,acash
distributionplanwasdeveloped.Theinitialsaleandrealizationofcashfromnoncashassetsresulted
inpartnerKproperlygetting$24,000.NootherpartnersreceivedcashalongwithK.Baseduponthis
information,whichofthefollowingstatementsiscorrect?
I.K'slossabsorptionpower(LAP)washigherthanJ'sLAPandL'sLAP.
II.K'scapitalbalancewassubstantiallylargerthanthebalancesofJandL.
A. Ionly
B. IIonly
C. EitherIorII
D. NeitherInorII
44. A partnership may be involved in "Dissociation" or
"Dissolution."Required:
Describe"Dissociation"and"Dissolution."

45. ApersonalstatementoffinancialconditiondatedDecember31,2008,istobepreparedforWilhelm
Holz.Heprovidesthefollowinginformationforyouruseinpreparingthestatements.Allamountsareas
ofDecember31,2008.
1) Cashonhandandinbankis$4,000.
2) Investmentscosting$30,000haveamarketvalueof$78,000.
3) Hispersonalresidencecost$150,000tenyearsago,andiscurrentlyworth$320,000.
4) Thepayoffbalanceofhishomemortgageis$80,000.
5) The fair value of his 401(k) retirement account is $700,000. All withdrawals from the
accountwillbefullytaxable.
6) Amountsdueoncreditcarddebttotal$5,000.
7) Estimatedincometaxesonhiscalendar2008earningsamountto$15,000.Taxeswithheld
in2008were$14,000.
8) Assumeanincometaxrateof30percent.
Required:PrepareastatementoffinancialconditionforMr.HolzasofDecember31,2008.Assumeany
gainonsubsequentsaleoftheresidencewillnotbetaxexempt.

46.WhenDisneyandCharlesdecidedtoincorporatetheirpartnership,thetrialbalancewasas

follows:
Thepartnership'sbookswillbeclosed,andnewbookswillbeusedforD&CCorporation.The
followingadditionalinformationisavailable:

1.Theestimatedfairvaluesoftheassetsfollow:
2. Allassetsandliabilitiesaretransferredtothecorporation.
3. Thecommonstockis$5par.AliceandBettyreceiveatotalof24,000shares.
4. DisneyandCharlesshareprofitsandlossesintheratio6:4.
Required:
a. Preparetheentriesonthepartnership'sbookstorecord(1)therevaluationofassets,(2)thetransfer
oftheassetstotheD&CCorporationandthereceiptofthecommonstock,and(3)theclosingof
thebooks.
b. PreparetheentriesonD&CCorporation'sbookstorecordtheassetsandtheissuanceofthecommon
stock.

47. ListenandHeararethinkingofdissolvingtheirpartnership.Listenhasafriendwhotoldhimtocomplete
a"lumpsum"liquidation.Hearwantstocompletean"installment"liquidation.Theyhavecometoyou
foradvice.WhatdoyourecommendandWhy?

48. On March 1, 20X9, the ABC partnership decides to complete a lumpsum


liquidationassoonaspossible.ThepartnershipbalancesheetpreparedonMarch
1appears

below:
Thepartnersshareprofitsandlossesintheratioof3:4:3.PartnerBispersonallyinsolvent,butpartners
AandChavesufficientpersonalassetstosatisfyanycapitaldeficits.OnMarch15,20X9,thenoncash
assetsaresoldfor$550,000.LumpsumpaymentsaremadetothepartnersonMarch16,immediately
afterthecreditorshavebeenpaid.
Required:
Prepareastatementofpartnershiprealizationandliquidation.

49.ThepartnershipofRachel,Adams,andNixonhasthefollowingtrialbalanceonSeptember30,

2009:
Thepartnersshareprofitsandlossesasfollows:Rachel,50percent;Adams,30percent;andNixon,20
percent.Thepartnersareconsideringanofferof$180,000fortheaccountsreceivable,inventory,and
plantandequipmentasofSeptember30.The$180,000willbepaidtocreditorsandthepartnersin
installments,thenumberandamountsofwhicharetobenegotiated.
Required:
PrepareacashdistributionplanasofSeptember30,2009,showinghowmuchcasheachpartnerwill
receiveiftheoffertoselltheassetsisaccepted.

50. Refer to the facts in Question 46. The partners have decided to liquidate their partnership by
installmentsinsteadofacceptingtheofferof$180,000.Cashisdistributedtothepartnersattheend
ofeachmonth.Asummaryoftheliquidationtransactionsfollows:
October
1. $25,000iscollectedonaccountsreceivable;balanceisuncollectible.
2. $20,000receivedfortheentireinventory.
3. $1,500liquidationexpensepaid.
4. $40,000paidtocreditors.
5. $10,000cashretainedinthebusinessattheendofthemonth.
November
6. $2,000inliquidationexpensespaid.
7. Aspartpaymentofhiscapital,Nixonacceptedanitemofspecialequipmentthathedeveloped,which
hadabookvalueof$8,000.Thepartnersagreedthatavalueof$12,000shouldbeplacedonthisitemfor
liquidationpurposes.
8. $4,000cashretainedinthebusinessattheendofthemonth.
December
9. $150,000receivedonsaleofremainingplantandequipment.
10. $1,000liquidationexpensespaid.Nocashretainedinthebusiness.
Required:
Prepareastatementofpartnershiprealizationandliquidationwithsupportingschedulesofsafepayments
topartners.