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Chapter 16 - Partnerships: Liquidation

Chapter 16 Partnerships: Liquidation


Multiple Choice Questions

1. The capital balances, prior to the liquidation of the XYZ partnership, ere as follo s:

X, Y, and Z share profits and losses in the ratio of !:":#. $s a result of a loan, the partnership o es Y %&','''. (sin) the infor*ation abo+e, hich partner has the hi)hest Loss $bsorption Po er ,L$P- prior to liquidation. $. X /. Y C. Z 0. /oth X and Y

#. The balance sheet )i+en belo is presented for the partnership of 1anet, $nton, and 2illet:

The partners share profits and losses in the ratio of !:":#, respecti+el3. The partners a)reed to dissol+e the partnership after sellin) the other assets for %!','''. 4n dissolution of the partnership, 1anet should recei+e: $. %'. /. %&','''. C. %1','''. 0. %"','''.

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Chapter 16 - Partnerships: Liquidation

". 4n 0ece*ber 1, #''5, the partners of Ti*, 6illia*s, and Le+in, ho share profits and losses in the ratio of 7:7:#, decided to liquidate their partnership. 4n this date the partnership condensed balance sheet as as follo s:

4n 0ece*ber 11, #''5, the first cash sale of other assets ith a carr3in) a*ount of %#'',''' reali8ed %17','''. 9afe install*ent pa3*ents to the partners ere *ade on the sa*e date. :o *uch cash should be distributed to each partner.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

To*, 0ic;, and :arr3 are partners in an equip*ent leasin) business that has not been able to )enerate the t3pe of re+enue e<pected b3 the partners. The3 share profits and losses in a ratio of !:":#. The3 ha+e decided to liquidate the business and ha+e sold all the assets e<cept for one piece of hea+3 *achiner3. $ll partnership liabilities ha+e been settled and all the partners are personall3 insol+ent. The *achiner3 has a boo; +alue of %&!,''', and the partners ha+e capital account balances as follo s:

=ach of the follo in) are independent cases.

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Chapter 16 - Partnerships: Liquidation

7. >efer to the infor*ation )i+en abo+e. 6hat a*ount of cash ill each partner recei+e as a liquidatin) distribution if the *achiner3 is sold for 6!,''' dollars.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

!. >efer to the infor*ation )i+en abo+e. 6hat a*ount of cash ill each partner recei+e as a liquidatin) distribution if the *achiner3 is sold for "",''' dollars.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

6. >efer to the infor*ation )i+en abo+e. 6hat a*ount of cash ill each partner recei+e as a liquidatin) distribution if the *achiner3 is sold for #1,1'' dollars.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

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Chapter 16 - Partnerships: Liquidation

Partners 0ennis and Lill3 ha+e decided to liquidate their business. The follo in) infor*ation is a+ailable:

0ennis and Lill3 share profits and losses in a ":# ratio. 0urin) the first *onth of liquidation, half the in+entor3 is sold for %6',''', and %6',''' of the accounts pa3able is paid. 0urin) the second *onth, the rest of the in+entor3 is sold for %7!,''', and the re*ainin) accounts pa3able are paid. Cash is distributed at the end of each *onth, and the liquidation is co*pleted at the end of the second *onth.

?. >efer to the infor*ation pro+ided abo+e. (sin) a safe pa3*ents schedule, ho *uch cash ill be distributed to 0ennis at the end of the first *onth. $. %67,''' /. %6',''' C. %#7,''' 0. %"6,'''

&. >efer to the infor*ation pro+ided abo+e. (sin) a safe pa3*ents schedule, ho *uch cash ill be distributed to Lill3 at the end of the first *onth. $. %#7,''' /. %7',''' C. %16,''' 0. %67,'''

5. >efer to the infor*ation pro+ided abo+e. (sin) a safe pa3*ents schedule, ho *uch cash ill be distributed to 0ennis at the end of the second *onth. $. %1&,''' /. %#?,''' C. %"6,''' 0. %6','''

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Chapter 16 - Partnerships: Liquidation

1'. >efer to the infor*ation pro+ided abo+e. (sin) a safe pa3*ents schedule, ho *uch cash ill be distributed to Lill3 at the end of the second *onth. $. %#?,''' /. %"6,''' C. %1&,''' 0. %'

11. >efer to the infor*ation pro+ided. $ssu*e instead that the re*ainin) in+entor3 as sold for %1',''' in the second *onth. 6hat pa3*ents ill be *ade to 0ennis and Lill3 at the end of the second *onth.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

1#. @n the co*putation of a partnerAs Loss $bsorption Po er ,L$P-, the indi+idual partnerAs capital balance and profit-and-loss percenta)e are used in hich of the follo in) a3s.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

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Chapter 16 - Partnerships: Liquidation

1". 0urin) the liquidation of the BC: partnership, a cash distribution as *ade to all the partners, ho share profits and losses 6' percent, #' percent, and #' percent, respecti+el3. $ssu*in) that the cash distribution referred to as *ade properl3, ho *uch ould C recei+e if an additional %6',''' as distributed. $. %6',''' /. %#',''' C. %1?,''' 0. %1#,'''

17. 6hich of the follo in) ite*s are i*portant in the deter*ination of safe install*ent pa3*ents to partners. @. 0eficits created in capital accounts are distributed to the re*ainin) partners. @@. $ll unsold noncash assets are assu*ed to be orthless. $. @ onl3 /. @@ onl3 C. /oth @ and @@ 0. Deither @ nor @@

1!. @n the co*putation of a partnerAs Loss $bsorption Po er ,L$P-, hich of the follo in) state*ents is incorrect. @. The co*putation of L$Ps for all partners allo s cash to be distributed before all partnership assets ha+e been sold and all creditors ha+e been paid. @@. The co*putation of L$Ps for all partners indicates the relati+e stren)th of each partnerAs net capital position so that a+ailable cash is distributed in respecti+e loss-sharin) ratios. $. @ /. @@ C. /oth @ and @@ 0. Deither @ nor @@

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Chapter 16 - Partnerships: Liquidation

16. The /@C Partnership has decided to liquidate at 0ece*ber "1, #''&. The capital and loan balances of the partners at 0ece*ber "1, #''&, are pro+ided belo :

@f 3ou ere to calculate the Loss $bsorption Po er for each partner, ho ran; ,fro* hi)hest to lo est L$P-. $. /, @, C /. @, /, C C. /, C, @ 0. C, @, /

ould the partners

1?. Partner $ has a s*aller capital balance than Partner L. Partner $, ho e+er, has a hi)her profit-and-loss-sharin) percenta)e than Partner L. The L$ partnership has decided to liquidate. $s a result of the infor*ation )i+en, $. Partner L ill ha+e a s*aller loss absorption po er than $. /. Partner L ill recei+e cash onl3 after $ has recei+ed cash. C. Partner $ ill ha+e a s*aller loss absorption po er than L. 0. Partner $ ill ne+er recei+e an3 cash fro* partnership liquidation.

1&. @n the calculation of the loss absorption po er for a partner, a partnerAs loan balance ,an a*ount that is o ed b3 the partnership- should be: @. $dded to the partnerAs capital balance. @@. Paid to the partner as a creditor of the partnership. $. @ onl3 /. @@ onl3 C. /oth @ and @@ 0. Deither @ nor @@

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Chapter 16 - Partnerships: Liquidation

15. 4n a partnerAs personal state*ent of financial condition, ho should liabilities be +alued. @. Present +alue @@. Lo er of present +alue or cash settle*ent a*ount $. @ /. @@ C. /oth @ and @@ 0. Deither @ nor @@

#'. 4n a partnerAs personal state*ent of financial condition, assets and liabilities are presented: @. $s current and noncurrent. @@. @n order of liquidit3 and *aturit3. $. @ /. @@ C. /oth @ and @@ 0. Deither @ nor @@

#1. The personal financial state*ents of a partner include hich of the follo in). @. 9tate*ent of financial condition. @@. 9tate*ent of chan)es in net orth. @@@. 9tate*ent of cash flo s. $. @ and @@ /. @ and @@@ C. @@ and @@@ 0. @, @@, and @@@

##. 4n a partnerAs personal state*ent of financial condition, ho are assets +alued. $. :istorical cost /. /oo; +alue C. 0iscounted +alue 0. =sti*ated current +alue

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Chapter 16 - Partnerships: Liquidation

#". 4n a partnerAs personal state*ent of chan)es in net orth, hat t3pe,s- of inco*e is ,arereco)ni8ed. @. >eali8ed @@. (nreali8ed $. @ onl3 /. @@ onl3 C. /oth @ and @@ 0. Deither @ nor @@

/ill, Pa)e, Larr3, and 9cott ha+e decided to ter*inate their partnership. The partnershipAs balance sheet at the ti*e the3 decide to ind up is as follo s:

0urin) the indin) up of the partnership, the other assets are sold for %1!',''' and the accounts pa3able are paid. Pa)e and Larr3 are personall3 sol+ent, but /ill and 9cott are personall3 insol+ent. The partners share profits and losses in the ratio of 7:#:1:".

#7. /ased on the precedin) infor*ation, hat a*ount ill be paid out to /ill upon liquidation of the partnership. $. %' /. %#!,''' C. %11,66? 0. %#,!''

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Chapter 16 - Partnerships: Liquidation

#!. /ased on the precedin) infor*ation, hat a*ount ill be paid out to 9cott upon liquidation of the partnership. $. %' /. %#,!'' C. %#!,''' 0. %6!,'''

#6. /ased on the precedin) infor*ation, hat a*ount ill be distributed to Pa)e and Larr3 upon liquidation of the partnership.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

/ill, Pa)e, Larr3, and 9cott ha+e decided to ter*inate their partnership. The partnershipAs balance sheet at the ti*e the3 decide to ind up is as follo s:

0urin) the indin) up of the partnership, the other assets are sold for %1!',''' and the accounts pa3able are paid. Pa)e and Larr3 are personall3 sol+ent, but /ill and 9cott are personall3 insol+ent. The partners share profits and losses in the ratio of ":#:1:7.

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Chapter 16 - Partnerships: Liquidation

#?. /ased on the precedin) infor*ation, hat a*ount ill be paid out to /ill upon liquidation of the partnership. $. %' /. %!,''' C. %#!,''' 0. %#,!''

#&. /ased on the precedin) infor*ation, hat a*ount ill be paid out to 9cott upon liquidation of the partnership. $. %' /. %#,!'' C. %!,''' 0. %6,7#5

#5. /ased on the precedin) infor*ation, hat a*ounts ill be distributed to Pa)e and Larr3 upon liquidation of the partnership.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

"'. 6hen a partnership is liquidated on a piece*eal basis and cash has been distributed properl3 to all partners as noncash assets ha+e been turned into cash, all future cash distributions should be *ade: @. @n the profit and loss ratio. @@. $ccordin) to the balances in the partnersA capital accounts. $. @ onl3 /. @@ onl3 C. /oth @ and @@ 0. Deither @ nor @@

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Chapter 16 - Partnerships: Liquidation

"1. 6hen is a partnership considered to be insol+ent. @. 6hen the total of all partnersA capital accounts results in a debit balance. @@. 6hen at least one of the partners is personall3 insol+ent. $. @ onl3 /. @@ onl3 C. /oth @ and @@ 0. Deither @ nor @@

"#. The co*putation of a safe install*ent pa3*ent for the XYZ partnership resulted in onl3 partner Z recei+in) cash. 6hich of the follo in) state*ents is correct. @. Partner Z lent the partnership cash, and the partnership had to pa3 bac; the loan to Z before distributin) cash to X and Y. @@. $fter assu*in) all noncash assets ere potentiall3 orthless and that assu*ed capital deficits created in XAs and YAs capital balances ere losses to be allocated to ZE ZAs capital balance as the onl3 capital balance left ith a credit. $. @ onl3 /. @@ onl3 C. =ither @ or @@ 0. Deither @ nor @@

"". The 1FL partnership liquidated its business in #''5. 0ue to an e<pected lon) liquidation period, a cash distribution plan as de+eloped. The initial sale and reali8ation of cash fro* noncash assets resulted in partner F properl3 )ettin) %#7,'''. Do other partners recei+ed cash alon) ith F. /ased upon this infor*ation, hich of the follo in) state*ents is correct. @. FAs loss absorption po er ,L$P- as hi)her than 1As L$P and LAs L$P. @@. FAs capital balance as substantiall3 lar)er than the balances of 1 and L. $. @ onl3 /. @@ onl3 C. =ither @ or @@ 0. Deither @ nor @@

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Chapter 16 - Partnerships: Liquidation

"7. 4n 0ece*ber "1, #''&, 2r. and 2rs. 6illia*s o ned a parcel of land held as an in+est*ent. The land as purchased for %7',''' in #''6, and as encu*bered b3 a *ort)a)e ith a principal balance of %"',''' at 0ece*ber "1, #''&. 4n this date the fair +alue of the land as %?!,'''. @n the 6illia*sA 0ece*ber "1, #''&, personal state*ent of financial condition, at hat a*ount should the land in+est*ent and *ort)a)e pa3able be reported.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

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Chapter 16 - Partnerships: Liquidation

The trial balance of 62 Partnership is as follo s:

6ilfred and 2i;e decides to incorporate their partnership. The partnershipAs boo;s ill be closed, and ne boo;s ill be used for 6 G 2 Corporation. The follo in) additional infor*ation is a+ailable: 1. The esti*ated fair +alues of the assets follo :

#. $ll assets and liabilities are transferred to the corporation. ". The co**on stoc; is %1' par. 6ilfred and 2i;e recei+e a total of 1',''' shares. 7. The partners share profits and losses in the ratio ?:".

"!. /ased on the precedin) infor*ation, the Hournal entr3 on the partnershipAs boo;s to record the @n+est*ent in 6G2 Corporation 9toc; ill be debited for: $. %1&1,''' /. %1"1,''' C. %#'',''' 0. %1!','''

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Chapter 16 - Partnerships: Liquidation

"6. /ased on the precedin) infor*ation, the Hournal entr3 on the partnershipAs boo;s to record distribution of stoc; to prior partners ill include a debit to 6ilfred, Capital for: $. %17','''. /. %51,?''. C. %&6,?''. 0. %1#6,?''.

"?. /ased on the precedin) infor*ation, the Hournal entr3 on the partnershipAs boo;s to record distribution of stoc; to prior partners ill include a debit to 2i;e, Capital for: $. %"&,'1'. /. %"1,!''. C. %7#,'''. 0. %77,"''.

"&. /ased on the precedin) infor*ation, the Hournal entr3 on 6 G 2 CorporationAs boo;s to record the assets and the issuance of the co**on stoc; ill include a credit to $dditional Paid@n Capital for: $. %'. /. %&1,'''. C. %"1,'''. 0. %!','''.

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Chapter 16 - Partnerships: Liquidation

The follo in) condensed balance sheet is presented for the partnership of 0, =, and B ho share profits and losses in the ratio of !:":#, respecti+el3:

The partners a)reed to liquidate the partnership after sellin) the other assets.

"5. >efer to the abo+e infor*ation. @f the other assets are sold for %#&',''', ho *uch should B recei+e upon liquidation. $. %77,''' /. %!',''' C. %?6,''' 0. %5','''

7'. >efer to the abo+e infor*ation. @f the other assets are sold for %&',''', and all partners are personall3 insol+ent, ho *uch should = recei+e upon liquidation. $. %' /. %6,''' C. %1',''' 0. %#','''

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Chapter 16 - Partnerships: Liquidation

71. The C>T partnership has decided to ter*inate operations and to liquidate the partnership assets. There are no partner loans, and all partners ha+e positi+e capital balances. Cains and losses on liquidation and cash distributions to partners should be allocated as follo s:

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

Essay Questions

7#. $ partnership *a3 be in+ol+ed in I0issociationI or I0issolutionI. >equired: 0escribe I0issociationI and I0issolution.I

7". Listen and :ear are thin;in) of dissol+in) their partnership. Listen has a friend ho told hi* to co*plete a Ilu*p-su*I liquidation. :ear ants to co*plete an Iinstall*entI liquidation. The3 ha+e co*e to 3ou for ad+ice. 6hat do 3ou reco**end and 6h3.

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Chapter 16 - Partnerships: Liquidation

77. 4n 2arch 1, #''5, the $/C partnership decides to co*plete a lu*p-su* liquidation as soon as possible. The partnership balance sheet prepared on 2arch 1 appears belo :

The partners share profits and losses in the ratio of ":7:". Partner / is personall3 insol+ent, but partners $ and C ha+e sufficient personal assets to satisf3 an3 capital deficits. 4n 2arch 1!, #''5, the non-cash assets are sold for %!!','''. Lu*p su* pa3*ents are *ade to the partners on 2arch 16, i**ediatel3 after the creditors ha+e been paid.

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Chapter 16 - Partnerships: Liquidation

7!. $ personal state*ent of financial condition dated 0ece*ber "1, #''&, is to be prepared for 6ilhel* :ol8. :e pro+ides the follo in) infor*ation for 3our use in preparin) the state*ents. $ll a*ounts are as of 0ece*ber "1, #''&. 1- Cash on hand and in ban; is %7,'''. #- @n+est*ents costin) %"',''' ha+e a *ar;et +alue of %?&,'''. "- :is personal residence cost %1!',''' ten 3ears a)o, and is currentl3 orth %"#','''. 7- The pa3off balance of his ho*e *ort)a)e is %&','''. !- The fair +alue of his 7'1,;- retire*ent account is %?'','''. $ll ithdra als fro* the account ill be full3 ta<able. 6- $*ounts due on credit card debt total %!,'''. ?- =sti*ated inco*e ta<es on his calendar #''& earnin)s a*ount to %1!,'''. Ta<es ithheld in #''& ere %17,'''. &- $ssu*e an inco*e ta< rate of "' percent. >equired: Prepare a state*ent of financial condition for 2r. :ol8 as of 0ece*ber "1, #''&. $ssu*e an3 )ain on subsequent sale of the residence ill not be ta<-e<e*pt.

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Chapter 16 - Partnerships: Liquidation

76. The partnership of >achel, $da*s, and Di<on has the follo in) trial balance on 9epte*ber "', #''5:

The partners share profits and losses as follo s: >achel, !' percentE $da*s, "' percentE and Di<on, #' percent. The partners are considerin) an offer of %1&',''' for the accounts recei+able, in+entor3, and plant and equip*ent as of 9epte*ber "'. The %1&',''' ill be paid to creditors and the partners in install*ents, the nu*ber and a*ounts of hich are to be ne)otiated. >equired: Prepare a cash distribution plan as of 9epte*ber "', #''5, sho in) ho *uch cash each partner ill recei+e if the offer to sell the assets is accepted.

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Chapter 16 - Partnerships: Liquidation

7?. >efer to the facts in Juestion 76. The partners ha+e decided to liquidate their partnership b3 install*ents instead of acceptin) the offer of %1&','''. Cash is distributed to the partners at the end of each *onth. $ su**ar3 of the liquidation transactions follo s: 4ctober 1. %#!,''' is collected on accounts recei+ableE balance is uncollectible. #. %#',''' recei+ed for the entire in+entor3. ". %1,!'' liquidation e<pense paid. 7. %7',''' paid to creditors. !. %1',''' cash retained in the business at the end of the *onth. Do+e*ber 6. %#,''' in liquidation e<penses paid. ?. $s part pa3*ent of his capital, Di<on accepted an ite* of special equip*ent that he de+eloped, hich had a boo; +alue of %&,'''. The partners a)reed that a +alue of %1#,''' should be placed on this ite* for liquidation purposes. &. %7,''' cash retained in the business at the end of the *onth. 0ece*ber 5. %1!',''' recei+ed on sale of re*ainin) plant and equip*ent. 1'. %1,''' liquidation e<penses paid. Do cash retained in the business. >equired: Prepare a state*ent of partnership reali8ation and liquidation ith supportin) schedules of safe pa3*ents to partners.

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Chapter 16 - Partnerships: Liquidation

7&. 6hen 0isne3 and Charles decided to incorporate their partnership, the trial balance as as follo s:

The partnershipAs boo;s ill be closed, and ne boo;s ill be used for 0 G C Corporation. The follo in) additional infor*ation is a+ailable: 1. The esti*ated fair +alues of the assets follo :

#. $ll assets and liabilities are transferred to the corporation. ". The co**on stoc; is %! par. $lice and /ett3 recei+e a total of #7,''' shares. 7. 0isne3 and Charles share profits and losses in the ratio 6:7. >equired a. Prepare the entries on the partnershipAs boo;s to record ,1- the re+aluation of assets, ,#- the transfer of the assets to the 0 G C Corporation and the receipt of the co**on stoc;, and ,"- the closin) of the boo;s. b. Prepare the entries on 0 G C CorporationAs boo;s to record the assets and the issuance of the co**on stoc;.

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Chapter 16 - Partnerships: Liquidation

Chapter 16 Partnerships: Liquidation $ns er Fe3

Multiple Choice Questions

1. The capital balances, prior to the liquidation of the XYZ partnership, ere as follo s:

X, Y, and Z share profits and losses in the ratio of !:":#. $s a result of a loan, the partnership o es Y %&','''. (sin) the infor*ation abo+e, hich partner has the hi)hest Loss $bsorption Po er ,L$P- prior to liquidation. $. X /. Y C. Z 0. /oth X and Y

AACSB: Analytic AICPA: Measurement

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Chapter 16 - Partnerships: Liquidation

#. The balance sheet )i+en belo is presented for the partnership of 1anet, $nton, and 2illet:

The partners share profits and losses in the ratio of !:":#, respecti+el3. The partners a)reed to dissol+e the partnership after sellin) the other assets for %!','''. 4n dissolution of the partnership, 1anet should recei+e: $. %'. /. %&','''. C. %1','''. D. %"','''.

AACSB: Analytic AICPA: Measurement

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Chapter 16 - Partnerships: Liquidation

". 4n 0ece*ber 1, #''5, the partners of Ti*, 6illia*s, and Le+in, ho share profits and losses in the ratio of 7:7:#, decided to liquidate their partnership. 4n this date the partnership condensed balance sheet as as follo s:

4n 0ece*ber 11, #''5, the first cash sale of other assets ith a carr3in) a*ount of %#'',''' reali8ed %17','''. 9afe install*ent pa3*ents to the partners ere *ade on the sa*e date. :o *uch cash should be distributed to each partner.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

AACSB: Analytic AICPA: Measurement

To*, 0ic;, and :arr3 are partners in an equip*ent leasin) business that has not been able to )enerate the t3pe of re+enue e<pected b3 the partners. The3 share profits and losses in a ratio of !:":#. The3 ha+e decided to liquidate the business and ha+e sold all the assets e<cept for one piece of hea+3 *achiner3. $ll partnership liabilities ha+e been settled and all the partners are personall3 insol+ent. The *achiner3 has a boo; +alue of %&!,''', and the partners ha+e capital account balances as follo s:

=ach of the follo in) are independent cases.

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Chapter 16 - Partnerships: Liquidation

7. >efer to the infor*ation )i+en abo+e. 6hat a*ount of cash ill each partner recei+e as a liquidatin) distribution if the *achiner3 is sold for 6!,''' dollars.

$. 4ption $ B. 4ption / C. 4ption C 0. 4ption 0

AACSB: Analytic AICPA: Measurement

!. >efer to the infor*ation )i+en abo+e. 6hat a*ount of cash ill each partner recei+e as a liquidatin) distribution if the *achiner3 is sold for "",''' dollars.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

AACSB: Analytic AICPA: Measurement

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Chapter 16 - Partnerships: Liquidation

6. >efer to the infor*ation )i+en abo+e. 6hat a*ount of cash ill each partner recei+e as a liquidatin) distribution if the *achiner3 is sold for #1,1'' dollars.

A. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

AACSB: Analytic AICPA: Measurement

Partners 0ennis and Lill3 ha+e decided to liquidate their business. The follo in) infor*ation is a+ailable:

0ennis and Lill3 share profits and losses in a ":# ratio. 0urin) the first *onth of liquidation, half the in+entor3 is sold for %6',''', and %6',''' of the accounts pa3able is paid. 0urin) the second *onth, the rest of the in+entor3 is sold for %7!,''', and the re*ainin) accounts pa3able are paid. Cash is distributed at the end of each *onth, and the liquidation is co*pleted at the end of the second *onth.

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Chapter 16 - Partnerships: Liquidation

?. >efer to the infor*ation pro+ided abo+e. (sin) a safe pa3*ents schedule, ho *uch cash ill be distributed to 0ennis at the end of the first *onth. $. %67,''' /. %6',''' C. %#7,''' D. %"6,'''

AACSB: Analytic AICPA: Measurement

&. >efer to the infor*ation pro+ided abo+e. (sin) a safe pa3*ents schedule, ho *uch cash ill be distributed to Lill3 at the end of the first *onth. A. %#7,''' /. %7',''' C. %16,''' 0. %67,'''

AACSB: Analytic AICPA: Measurement

5. >efer to the infor*ation pro+ided abo+e. (sin) a safe pa3*ents schedule, ho *uch cash ill be distributed to 0ennis at the end of the second *onth. $. %1&,''' B. %#?,''' C. %"6,''' 0. %6','''

AACSB: Analytic AICPA: Measurement

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Chapter 16 - Partnerships: Liquidation

1'. >efer to the infor*ation pro+ided abo+e. (sin) a safe pa3*ents schedule, ho *uch cash ill be distributed to Lill3 at the end of the second *onth. $. %#?,''' /. %"6,''' C. %1&,''' 0. %'

AACSB: Analytic AICPA: Measurement

11. >efer to the infor*ation pro+ided. $ssu*e instead that the re*ainin) in+entor3 as sold for %1',''' in the second *onth. 6hat pa3*ents ill be *ade to 0ennis and Lill3 at the end of the second *onth.

$. 4ption $ /. 4ption / C. 4ption C D. 4ption 0

AACSB: Analytic AICPA: Measurement

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Chapter 16 - Partnerships: Liquidation

1#. @n the co*putation of a partnerAs Loss $bsorption Po er ,L$P-, the indi+idual partnerAs capital balance and profit-and-loss percenta)e are used in hich of the follo in) a3s.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

AACSB: Reflective Thinking AICPA: Decision Making

1". 0urin) the liquidation of the BC: partnership, a cash distribution as *ade to all the partners, ho share profits and losses 6' percent, #' percent, and #' percent, respecti+el3. $ssu*in) that the cash distribution referred to as *ade properl3, ho *uch ould C recei+e if an additional %6',''' as distributed. $. %6',''' /. %#',''' C. %1?,''' D. %1#,'''

AACSB: Analytic AICPA: Measurement

17. 6hich of the follo in) ite*s are i*portant in the deter*ination of safe install*ent pa3*ents to partners. @. 0eficits created in capital accounts are distributed to the re*ainin) partners. @@. $ll unsold noncash assets are assu*ed to be orthless. $. @ onl3 /. @@ onl3 C. /oth @ and @@ 0. Deither @ nor @@

AACSB: Reflective Thinking AICPA: Decision Making

16-"'

Chapter 16 - Partnerships: Liquidation

1!. @n the co*putation of a partnerAs Loss $bsorption Po er ,L$P-, hich of the follo in) state*ents is incorrect. @. The co*putation of L$Ps for all partners allo s cash to be distributed before all partnership assets ha+e been sold and all creditors ha+e been paid. @@. The co*putation of L$Ps for all partners indicates the relati+e stren)th of each partnerAs net capital position so that a+ailable cash is distributed in respecti+e loss-sharin) ratios. $. @ /. @@ C. /oth @ and @@ D. Deither @ nor @@

AACSB: Reflective Thinking AICPA: Decision Making

16. The /@C Partnership has decided to liquidate at 0ece*ber "1, #''&. The capital and loan balances of the partners at 0ece*ber "1, #''&, are pro+ided belo :

@f 3ou ere to calculate the Loss $bsorption Po er for each partner, ho ran; ,fro* hi)hest to lo est L$P-. $. /, @, C B. @, /, C C. /, C, @ 0. C, @, /

ould the partners

AACSB: Reflective Thinking AICPA: Decision Making

16-"1

Chapter 16 - Partnerships: Liquidation

1?. Partner $ has a s*aller capital balance than Partner L. Partner $, ho e+er, has a hi)her profit-and-loss-sharin) percenta)e than Partner L. The L$ partnership has decided to liquidate. $s a result of the infor*ation )i+en, $. Partner L ill ha+e a s*aller loss absorption po er than $. /. Partner L ill recei+e cash onl3 after $ has recei+ed cash. C. Partner $ ill ha+e a s*aller loss absorption po er than L. 0. Partner $ ill ne+er recei+e an3 cash fro* partnership liquidation.

AACSB: Reflective Thinking AICPA: Decision Making

1&. @n the calculation of the loss absorption po er for a partner, a partnerAs loan balance ,an a*ount that is o ed b3 the partnership- should be: @. $dded to the partnerAs capital balance. @@. Paid to the partner as a creditor of the partnership. $. @ onl3 B. @@ onl3 C. /oth @ and @@ 0. Deither @ nor @@

AACSB: Reflective Thinking AICPA: Decision Making

15. ( ! A en"i#: A$ 4n a partnerAs personal state*ent of financial condition, ho should liabilities be +alued. @. Present +alue @@. Lo er of present +alue or cash settle*ent a*ount $. @ B. @@ C. /oth @ and @@ 0. Deither @ nor @@

AACSB: Reflective Thinking AICPA: Decision Making

16-"#

Chapter 16 - Partnerships: Liquidation

#'. ( ! A en"i#: A$ 4n a partnerAs personal state*ent of financial condition, assets and liabilities are presented: @. $s current and noncurrent. @@. @n order of liquidit3 and *aturit3. $. @ B. @@ C. /oth @ and @@ 0. Deither @ nor @@

AACSB: Reflective Thinking AICPA: Decision Making

#1. ( ! A en"i#: A$ The personal financial state*ents of a partner include hich of the follo in). @. 9tate*ent of financial condition. @@. 9tate*ent of chan)es in net orth. @@@. 9tate*ent of cash flo s. A. @ and @@ /. @ and @@@ C. @@ and @@@ 0. @, @@, and @@@

AACSB: Reflective Thinking AICPA: Decision Making

##. ( ! A en"i#: A$ 4n a partnerAs personal state*ent of financial condition, ho are assets +alued. $. :istorical cost /. /oo; +alue C. 0iscounted +alue D. =sti*ated current +alue

AACSB: Reflective Thinking AICPA: Decision Making

16-""

Chapter 16 - Partnerships: Liquidation

#". ( ! A en"i#: A$ 4n a partnerAs personal state*ent of chan)es in net orth, hat t3pe,s- of inco*e is ,are- reco)ni8ed. @. >eali8ed @@. (nreali8ed $. @ onl3 /. @@ onl3 C. /oth @ and @@ 0. Deither @ nor @@

AACSB: Reflective Thinking AICPA: Decision Making

/ill, Pa)e, Larr3, and 9cott ha+e decided to ter*inate their partnership. The partnershipAs balance sheet at the ti*e the3 decide to ind up is as follo s:

0urin) the indin) up of the partnership, the other assets are sold for %1!',''' and the accounts pa3able are paid. Pa)e and Larr3 are personall3 sol+ent, but /ill and 9cott are personall3 insol+ent. The partners share profits and losses in the ratio of 7:#:1:".

#7. /ased on the precedin) infor*ation, hat a*ount ill be paid out to /ill upon liquidation of the partnership. A. %' /. %#!,''' C. %11,66? 0. %#,!''

AACSB: Analytic AICPA: Measurement

16-"7

Chapter 16 - Partnerships: Liquidation

#!. /ased on the precedin) infor*ation, hat a*ount ill be paid out to 9cott upon liquidation of the partnership. $. %' B. %#,!'' C. %#!,''' 0. %6!,'''

AACSB: Analytic AICPA: Measurement

#6. /ased on the precedin) infor*ation, hat a*ount ill be distributed to Pa)e and Larr3 upon liquidation of the partnership.

$. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

AACSB: Analytic AICPA: Measurement

16-"!

Chapter 16 - Partnerships: Liquidation

/ill, Pa)e, Larr3, and 9cott ha+e decided to ter*inate their partnership. The partnershipAs balance sheet at the ti*e the3 decide to ind up is as follo s:

0urin) the indin) up of the partnership, the other assets are sold for %1!',''' and the accounts pa3able are paid. Pa)e and Larr3 are personall3 sol+ent, but /ill and 9cott are personall3 insol+ent. The partners share profits and losses in the ratio of ":#:1:7.

#?. /ased on the precedin) infor*ation, hat a*ount ill be paid out to /ill upon liquidation of the partnership. A. %' /. %!,''' C. %#!,''' 0. %#,!''

AACSB: Analytic AICPA: Measurement

#&. /ased on the precedin) infor*ation, hat a*ount ill be paid out to 9cott upon liquidation of the partnership. A. %' /. %#,!'' C. %!,''' 0. %6,7#5

AACSB: Analytic AICPA: Measurement

16-"6

Chapter 16 - Partnerships: Liquidation

#5. /ased on the precedin) infor*ation, hat a*ounts ill be distributed to Pa)e and Larr3 upon liquidation of the partnership.

$. 4ption $ /. 4ption / C. 4ption C D. 4ption 0

AACSB: Analytic AICPA: Measurement

"'. 6hen a partnership is liquidated on a piece*eal basis and cash has been distributed properl3 to all partners as noncash assets ha+e been turned into cash, all future cash distributions should be *ade: @. @n the profit and loss ratio. @@. $ccordin) to the balances in the partnersA capital accounts. A. @ onl3 /. @@ onl3 C. /oth @ and @@ 0. Deither @ nor @@

AACSB: Reflective Thinking AICPA: Decision Making

"1. 6hen is a partnership considered to be insol+ent. @. 6hen the total of all partnersA capital accounts results in a debit balance. @@. 6hen at least one of the partners is personall3 insol+ent. A. @ onl3 /. @@ onl3 C. /oth @ and @@ 0. Deither @ nor @@

AACSB: Reflective Thinking AICPA: Decision Making

16-"?

Chapter 16 - Partnerships: Liquidation

"#. The co*putation of a safe install*ent pa3*ent for the XYZ partnership resulted in onl3 partner Z recei+in) cash. 6hich of the follo in) state*ents is correct. @. Partner Z lent the partnership cash, and the partnership had to pa3 bac; the loan to Z before distributin) cash to X and Y. @@. $fter assu*in) all noncash assets ere potentiall3 orthless and that assu*ed capital deficits created in XAs and YAs capital balances ere losses to be allocated to ZE ZAs capital balance as the onl3 capital balance left ith a credit. $. @ onl3 B. @@ onl3 C. =ither @ or @@ 0. Deither @ nor @@

AACSB: Reflective Thinking AICPA: Decision Making

"". The 1FL partnership liquidated its business in #''5. 0ue to an e<pected lon) liquidation period, a cash distribution plan as de+eloped. The initial sale and reali8ation of cash fro* noncash assets resulted in partner F properl3 )ettin) %#7,'''. Do other partners recei+ed cash alon) ith F. /ased upon this infor*ation, hich of the follo in) state*ents is correct. @. FAs loss absorption po er ,L$P- as hi)her than 1As L$P and LAs L$P. @@. FAs capital balance as substantiall3 lar)er than the balances of 1 and L. A. @ onl3 /. @@ onl3 C. =ither @ or @@ 0. Deither @ nor @@

AACSB: Reflective Thinking AICPA: Decision Making

16-"&

Chapter 16 - Partnerships: Liquidation

"7. 4n 0ece*ber "1, #''&, 2r. and 2rs. 6illia*s o ned a parcel of land held as an in+est*ent. The land as purchased for %7',''' in #''6, and as encu*bered b3 a *ort)a)e ith a principal balance of %"',''' at 0ece*ber "1, #''&. 4n this date the fair +alue of the land as %?!,'''. @n the 6illia*sA 0ece*ber "1, #''&, personal state*ent of financial condition, at hat a*ount should the land in+est*ent and *ort)a)e pa3able be reported.

$. 4ption $ B. 4ption / C. 4ption C 0. 4ption 0

AACSB: Analytic AICPA: Measurement

16-"5

Chapter 16 - Partnerships: Liquidation

The trial balance of 62 Partnership is as follo s:

6ilfred and 2i;e decides to incorporate their partnership. The partnershipAs boo;s ill be closed, and ne boo;s ill be used for 6 G 2 Corporation. The follo in) additional infor*ation is a+ailable: 1. The esti*ated fair +alues of the assets follo :

#. $ll assets and liabilities are transferred to the corporation. ". The co**on stoc; is %1' par. 6ilfred and 2i;e recei+e a total of 1',''' shares. 7. The partners share profits and losses in the ratio ?:".

"!. /ased on the precedin) infor*ation, the Hournal entr3 on the partnershipAs boo;s to record the @n+est*ent in 6G2 Corporation 9toc; ill be debited for: $. %1&1,''' B. %1"1,''' C. %#'',''' 0. %1!','''

AACSB: Analytic AICPA: Measurement

16-7'

Chapter 16 - Partnerships: Liquidation

"6. /ased on the precedin) infor*ation, the Hournal entr3 on the partnershipAs boo;s to record distribution of stoc; to prior partners ill include a debit to 6ilfred, Capital for: $. %17','''. /. %51,?''. C. %&6,?''. 0. %1#6,?''.

AACSB: Analytic AICPA: Measurement

"?. /ased on the precedin) infor*ation, the Hournal entr3 on the partnershipAs boo;s to record distribution of stoc; to prior partners ill include a debit to 2i;e, Capital for: $. %"&,'1'. /. %"1,!''. C. %7#,'''. D. %77,"''.

AACSB: Analytic AICPA: Measurement

"&. /ased on the precedin) infor*ation, the Hournal entr3 on 6 G 2 CorporationAs boo;s to record the assets and the issuance of the co**on stoc; ill include a credit to $dditional Paid@n Capital for: $. %'. /. %&1,'''. C. %"1,'''. 0. %!','''.

AACSB: Analytic AICPA: Measurement

16-71

Chapter 16 - Partnerships: Liquidation

The follo in) condensed balance sheet is presented for the partnership of 0, =, and B ho share profits and losses in the ratio of !:":#, respecti+el3:

The partners a)reed to liquidate the partnership after sellin) the other assets.

"5. >efer to the abo+e infor*ation. @f the other assets are sold for %#&',''', ho *uch should B recei+e upon liquidation. $. %77,''' B. %!',''' C. %?6,''' 0. %5','''

AACSB: Analytic AICPA: Measurement

7'. >efer to the abo+e infor*ation. @f the other assets are sold for %&',''', and all partners are personall3 insol+ent, ho *uch should = recei+e upon liquidation. $. %' /. %6,''' C. %1',''' 0. %#','''

AACSB: Analytic AICPA: Measurement

16-7#

Chapter 16 - Partnerships: Liquidation

71. The C>T partnership has decided to ter*inate operations and to liquidate the partnership assets. There are no partner loans, and all partners ha+e positi+e capital balances. Cains and losses on liquidation and cash distributions to partners should be allocated as follo s:

A. 4ption $ /. 4ption / C. 4ption C 0. 4ption 0

AACSB: Reflective Thinking AICPA: Decision Making

Essay Questions

16-7"

Chapter 16 - Partnerships: Liquidation

7#. $ partnership *a3 be in+ol+ed in I0issociationI or I0issolutionI. >equired: 0escribe I0issociationI and I0issolution.I 0issociation is the le)al description of the ithdra al of a partner includin) the follo in): i. PartnerAs death. ii. PartnerAs +oluntar3 ithdra al, i.e. retire*ent. iii. 1udicial deter*ination. Dot all dissociations result in a partnershipAs liquidation. 2an3 partner dissociations in+ol+e onl3 a bu3out of the ithdra in) partnerAs interest rather than a indin) up and liquidation of the partnershipAs business. 0issolution in+ol+es dissol+in) of the partnership and indin) up of the partnership business. 0issolutions can occur: i. @n a partnership at ill. $ partnership a)ree*ent can a+oid this situation. ii. @n a partnership for a definite ter* or specific underta;in). iii. /3 an e+ent that *a;es it unla ful to carr3 on the partnership business. i+. /3 a Hudicial deter*ination. $ I0issociationI that results in liquidation has the sa*e end result as I0issolutionI.

AACSB: Communication AICPA: Decision Making

7". Listen and :ear are thin;in) of dissol+in) their partnership. Listen has a friend ho told hi* to co*plete a Ilu*p-su*I liquidation. :ear ants to co*plete an Iinstall*entI liquidation. The3 ha+e co*e to 3ou for ad+ice. 6hat do 3ou reco**end and 6h3. $. ILu*p-su*I liquidation and K@nstall*entI liquidation does not represent a choice in procedures. The3 represent different points in ti*e. $ KLu*p-9u*I liquidation ta;es place hen all of the affairs of the partnership can be ended at the sa*e ti*e and all of the resultin) cash can be distributed to the partners at that ti*e. I@nstall*entI liquidation is hat nor*all3 occurs because the partners ant access to so*e cash as soon as possible, and all of the partnership assets ha+e to be sold and liabilities paid. The preparation of a I9afe-Pa3*ents 9cheduleI can allo this to happen in an orderl3 *anner.

AACSB: Communication AICPA: Critical Thinking

16-77

Chapter 16 - Partnerships: Liquidation

77. 4n 2arch 1, #''5, the $/C partnership decides to co*plete a lu*p-su* liquidation as soon as possible. The partnership balance sheet prepared on 2arch 1 appears belo :

The partners share profits and losses in the ratio of ":7:". Partner / is personall3 insol+ent, but partners $ and C ha+e sufficient personal assets to satisf3 an3 capital deficits. 4n 2arch 1!, #''5, the non-cash assets are sold for %!!','''. Lu*p su* pa3*ents are *ade to the partners on 2arch 16, i**ediatel3 after the creditors ha+e been paid.

AACSB: Analytic AICPA: Measurement

16-7!

Chapter 16 - Partnerships: Liquidation

7!. $ personal state*ent of financial condition dated 0ece*ber "1, #''&, is to be prepared for 6ilhel* :ol8. :e pro+ides the follo in) infor*ation for 3our use in preparin) the state*ents. $ll a*ounts are as of 0ece*ber "1, #''&. 1- Cash on hand and in ban; is %7,'''. #- @n+est*ents costin) %"',''' ha+e a *ar;et +alue of %?&,'''. "- :is personal residence cost %1!',''' ten 3ears a)o, and is currentl3 orth %"#','''. 7- The pa3off balance of his ho*e *ort)a)e is %&','''. !- The fair +alue of his 7'1,;- retire*ent account is %?'','''. $ll ithdra als fro* the account ill be full3 ta<able. 6- $*ounts due on credit card debt total %!,'''. ?- =sti*ated inco*e ta<es on his calendar #''& earnin)s a*ount to %1!,'''. Ta<es ithheld in #''& ere %17,'''. &- $ssu*e an inco*e ta< rate of "' percent.

16-76

Chapter 16 - Partnerships: Liquidation

>equired: Prepare a state*ent of financial condition for 2r. :ol8 as of 0ece*ber "1, #''&. $ssu*e an3 )ain on subsequent sale of the residence ill not be ta<-e<e*pt.

AACSB: Analytic AICPA: Measurement

16-7?

Chapter 16 - Partnerships: Liquidation

76. The partnership of >achel, $da*s, and Di<on has the follo in) trial balance on 9epte*ber "', #''5:

The partners share profits and losses as follo s: >achel, !' percentE $da*s, "' percentE and Di<on, #' percent. The partners are considerin) an offer of %1&',''' for the accounts recei+able, in+entor3, and plant and equip*ent as of 9epte*ber "'. The %1&',''' ill be paid to creditors and the partners in install*ents, the nu*ber and a*ounts of hich are to be ne)otiated. >equired: Prepare a cash distribution plan as of 9epte*ber "', #''5, sho in) ho *uch cash each partner ill recei+e if the offer to sell the assets is accepted.

16-7&

Chapter 16 - Partnerships: Liquidation

16-75

Chapter 16 - Partnerships: Liquidation

16-!'

Chapter 16 - Partnerships: Liquidation


AACSB: Analytic AICPA: Measurement

7?. >efer to the facts in Juestion 76. The partners ha+e decided to liquidate their partnership b3 install*ents instead of acceptin) the offer of %1&','''. Cash is distributed to the partners at the end of each *onth. $ su**ar3 of the liquidation transactions follo s: 4ctober 1. %#!,''' is collected on accounts recei+ableE balance is uncollectible. #. %#',''' recei+ed for the entire in+entor3. ". %1,!'' liquidation e<pense paid. 7. %7',''' paid to creditors. !. %1',''' cash retained in the business at the end of the *onth. Do+e*ber 6. %#,''' in liquidation e<penses paid. ?. $s part pa3*ent of his capital, Di<on accepted an ite* of special equip*ent that he de+eloped, hich had a boo; +alue of %&,'''. The partners a)reed that a +alue of %1#,''' should be placed on this ite* for liquidation purposes. &. %7,''' cash retained in the business at the end of the *onth. 0ece*ber 5. %1!',''' recei+ed on sale of re*ainin) plant and equip*ent. 1'. %1,''' liquidation e<penses paid. Do cash retained in the business. >equired: Prepare a state*ent of partnership reali8ation and liquidation ith supportin) schedules of safe pa3*ents to partners.

16-!1

Chapter 16 - Partnerships: Liquidation

16-!#

Chapter 16 - Partnerships: Liquidation

AACSB: Analytic AICPA: Measurement

16-!"

Chapter 16 - Partnerships: Liquidation

7&. 6hen 0isne3 and Charles decided to incorporate their partnership, the trial balance as as follo s:

The partnershipAs boo;s ill be closed, and ne boo;s ill be used for 0 G C Corporation. The follo in) additional infor*ation is a+ailable: 1. The esti*ated fair +alues of the assets follo :

#. $ll assets and liabilities are transferred to the corporation. ". The co**on stoc; is %! par. $lice and /ett3 recei+e a total of #7,''' shares. 7. 0isne3 and Charles share profits and losses in the ratio 6:7. >equired a. Prepare the entries on the partnershipAs boo;s to record ,1- the re+aluation of assets, ,#- the transfer of the assets to the 0 G C Corporation and the receipt of the co**on stoc;, and ,"- the closin) of the boo;s. b. Prepare the entries on 0 G C CorporationAs boo;s to record the assets and the issuance of the co**on stoc;.

16-!7

Chapter 16 - Partnerships: Liquidation

a-

b-

AACSB: Analytic AICPA: Measurement

16-!!