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Chapter 10 - Partnerships: Termination and Liquidation

Chapter 10
Partnerships: Termination and Liquidation

Multiple Choice Questions

1. When a partnership is insolvent and a partner has a deficit capital balance, that partner is
legally required to:
A. declare personal bankruptcy.
B. initiate legal proceedings against the partnership.
C. contribute cash to the partnership.
D. deliver a note payable to the partnership with specific payment terms.
E. None of the above. The partner has no legal responsibility to cover the capital deficit
balance.

2. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the
following balance sheet:

Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation
expenses are expected to be $12,000.
If the noncash assets were sold for $234,000, what amount of the loss would have been
allocated to Bartle?
A. $43,200.
B. $46,800.
C. $40,000.
D. $42,400.
E. $43,100.

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Chapter 10 - Partnerships: Termination and Liquidation

3. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the
following balance sheet:

Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation
expenses are expected to be $12,000.
The noncash assets were sold for $134,000. Which partner(s) would have had to contribute
assets to the partnership to cover a deficit in his or her capital account?
A. Abrams.
B. Bartle.
C. Creighton.
D. Abrams and Creighton.
E. Abrams and Bartle.

4. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the
following balance sheet:

Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation
expenses are expected to be $12,000.
After the liquidation expenses of $12,000 were paid and the noncash assets sold, Creighton
had a deficit of $8,000. For what amount were the noncash assets sold?
A. $170,000.
B. $264,000.
C. $158,000.
D. $146,000.
E. $185,000.

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Chapter 10 - Partnerships: Termination and Liquidation

5. The Keaton, Lewis, and Meador partnership had the following balance sheet just before
entering liquidation:

Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were
sold for $180,000. Liquidation expenses were $10,000.
Assume that Lewis was personally insolvent and could not contribute any assets to the
partnership, while Keaton and Meador were both solvent. What amount of cash would Keaton
have received from the distribution of partnership assets?
A. $38,000.
B. $30,000.
C. $24,000.
D. $34,000.
E. $31,600.

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Chapter 10 - Partnerships: Termination and Liquidation

6. The Keaton, Lewis, and Meador partnership had the following balance sheet just before
entering liquidation:

Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were
sold for $60,000. How much will each partner receive in the liquidation?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

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Chapter 10 - Partnerships: Termination and Liquidation

7. The Keaton, Lewis, and Meador partnership had the following balance sheet just before
entering liquidation:

Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. The partnership feels
confident it will be able to eventually sell the noncash assets and wants to distribute some
cash before paying liabilities. How much would each partner receive of a total $60,000
distribution of cash?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following
account balances:

Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and
losses in a ratio of 2:4:4.

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Chapter 10 - Partnerships: Termination and Liquidation

8. What amount of cash was available for safe payments, based on the above information?
A. $30,000.
B. $85,000.
C. $25,000.
D. $35,000.
E. $40,000.

9. Before liquidating any assets, the partners determined the amount of cash available for safe
payments. How should the amount of safe cash payments be distributed?
A. In a ratio of 2:4:4 among all the partners.
B. $18,333 to Henry and $16,667 to Jacobs.
C. In a ratio of 1:2 between Henry and Jacobs.
D. $15,000 to Henry and $10,000 to Jacobs.
E. $21,667 to Henry and $3,333 to Jacobs.

10. Before liquidating any assets, the partners determined the amount of cash for safe
payments and distributed it. The noncash assets were then sold for $120,000, and the
liquidation expenses of $5,000 were paid. How much of the $120,000 would be distributed to
the partners? (Hint: Either a predistribution plan or a schedule of safe payments would be

appropriate for solving this item.)


A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

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Chapter 10 - Partnerships: Termination and Liquidation

The following account balances were available for the Perry, Quincy, and Renquist
partnership just before it entered liquidation:

Inlcuded in Perry's capital balance is a $20,000 partnership loan owed to Perry. Perry, Quincy,
and Renquist shared profits and losses in a ratio of 2:4:4. Liquidation expenses were expected
to be $15,000.
All partners were solvent.

11. What amount would noncash assets need to be sold for in order for any partner to receive
some cash?
A. $185,000
B. $170,000
C. $165,000
D. $95,000
E. $90,000

12. What would be the minimum amount for which the noncash assets must have been sold,
in order for Quincy to receive some cash from the liquidation?
A. Any amount in excess of $170,000.
B. Any amount in excess of $190,000.
C. Any amount in excess of $260,000.
D. Any amount in excess of $280,000.
E. Any amount in excess of $300,000.

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Chapter 10 - Partnerships: Termination and Liquidation

A local partnership was in the process of liquidating and reported the following capital
balances:

Douglass indicated that the $14,000 deficit would be covered by a forthcoming contribution.
However, the two remaining partners asked to receive the $31,000 that was then in the cash
account.

13. How much of this money should Justice receive?


A. $15,467.
B. $15,533.
C. $17,333.
D. $16,533.
E. $15,867.

14. How much of this money should Zobart receive?


A. $15,467.
B. $14,467.
C. $17,333.
D. $15,633.
E. $15,867.

A local partnership was considering the possibility of liquidation since one of the partners
(Ding) was personally insolvent. Capital balances at that time were as follows. Profits and
losses were divided on a 4:2:2:2 basis, respectively.

Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time,
the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There
was no cash on hand at the time.

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Chapter 10 - Partnerships: Termination and Liquidation

15. If the assets could be sold for $228,000, what is the minimum amount that Ding's creditors
would have received?
A. $36,000.
B. $0.
C. $2,500.
D. $38,720.
E. $67,250.

16. If the assets could be sold for $228,000, what is the minimum amount that Laurel's
creditors would have received?
A. $36,000.
B. $0.
C. $2,500.
D. $38,250.
E. $67,250.

17. If the assets could be sold for $228,000, what is the minimum amount that Ezzard's
creditors would have received?
A. $36,000.
B. $0.
C. $2,500.
D. $38,250.
E. $67,250.

18. If the assets could be sold, for $228,000 what is the minimum amount that Tillman's
creditors would have received?
A. $36,000.
B. $0.
C. $2,500.
D. $38,250.
E. $67,250.

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Chapter 10 - Partnerships: Termination and Liquidation

19. Dancey, Reese, Newman, and Jahn were partners who shared profits and losses on a
4:2:2:2 basis, respectively. They were beginning to liquidate their business. At the start of the
process, capital balances were as follows:

Which one of the following statements is true for a predistribution plan?


A. The first available $16,000 would go to Newman.
B. The first available $20,000 would go to Dancey.
C. The first available $8,000 would go to Jahn.
D. The first available $8,000 would go to Newman.
E. The first available $4,000 would go to Jahn.

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Chapter 10 - Partnerships: Termination and Liquidation

20. Dancey, Reese, Newman, and Jahn were partners who shared profits and losses on a
4:2:2:2 basis, respectively. They were beginning to liquidate their business. At the start of the
process, capital balances were as follows:

Which one of the following statements is true for a predistribution plan?


A. The first available $16,000 would go to Newman. The next $12,000 would go $8,000 to
Dancey and $4,000 to Newman. The following $32,000 would be shared by Dancey, Reese,
and Newman. The total distribution would be $60,000 before all four partners share any
further payments equally.
B. The first available $16,000 would go to Newman. The next $12,000 would go $8,000 to
Dancey and $4,000 to Newman. The following $32,000 would be shared by Dancey, Reese,
and Newman. The total distribution would be $60,000 before all four partners share any
further payments in their profit and loss sharing ratios.
C. The first $20,000 would go to Newman. The next $8,000 would go to Dancey. The next
$12,000 would be shared by Dancey, Reese, and Newman. The total distribution would be
$40,000 before all four partners share any further payments equally.
D. The first available $8,000 would go to Newman. The next $4,000 would be split equally
between Dancey and Newman. The following $12,000 would be shared by Dancey, Reese,
and Newman. The total distribution would be $24,000 before all four partners share any
further payments equally.
E. The first available $8,000 would go to Newman. The next $4,000 would be split equally
between Dancey and Newman. The following $12,000 would be shared by Dancey, Reese,
and Newman. The total distribution would be $24,000 before all four partners share any
further payments in their profit and loss sharing ratios.

21. Which of the following will not result in the termination and liquidation of a partnership?
1) Partners are incompatible and choose to cease operations.
2) There are excessive losses that are expected to continue.
3) Retirement of a partner.
A. 1 only
B. 1 and 2 only
C. 2 and 3 only
D. 3 only
E. 1, 2, and 3

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Chapter 10 - Partnerships: Termination and Liquidation

22. What accounting transactions are not recorded by an accountant during partnership
liquidation?
A. The conversion of partnership assets into cash.
B. The allocation of gains and losses from sales of assets.
C. The payment of liabilities and expenses.
D. The initiation of legal action by creditors of the partnership.
E. Writeoff of remaining unpaid debts.

23. Which of the following statements is false concerning the partnership Schedule of
Liquidation?
A. Liquidations may take a considerable length of time to complete.
B. Frequent reporting by the accountant is rarely necessary.
C. The Schedule of Liquidation provides a listing of transactions to date, current cash, and
capital balances.
D. The Schedule of Liquidation provides a listing of property still held by the partnership as
well as liabilities remaining unpaid.
E. The Schedule of Liquidation keeps creditors and partners apprised of the results of the
process of dissolution.

24. What is the preferred method of resolving a partner's deficit balance, according to the
Uniform Partnership Act?
A. Partners never have a deficit balance.
B. The other partners must contribute personal assets to cover the deficit balance.
C. The partnership must sell assets in order to cover the deficit balance.
D. The partner with a deficit balance must contribute personal assets to cover the deficit
balance.
E. The partner with a deficit balance contributes personal assets only if those personal assets
exceed personal liabilities.

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Chapter 10 - Partnerships: Termination and Liquidation

25. Which of the following statements is true concerning the distribution of safe payments?
A. The distribution of safe payments assumes that any capital deficit balances will prove to be
a total loss to the partnership.
B. Safe payments are equal to the recorded capital balances of partners with positive capital
balances.
C. The distribution of safe payments may only be made after all liabilities have been paid.
D. In computing safe payments, partners with positive capital balances are assumed to absorb
an equal share of any deficit balance(s).
E. There are no safe payments until the liquidation is complete.

26. Which one of the following statements is correct?


A. If a partner of a liquidating partnership is unable to pay a capital account deficit, the deficit
is absorbed by the other partners in the profit and loss ratio of those partners.
B. Gains and losses from the sale of noncash assets are divided in the ratio of the partners'
capital account balances if there is no income-sharing plan in the partnership contract.
C. A loan receivable from a partner is added to the partner's capital account balance in the
preparation of a cash distribution plan.
D. Partners may not receive any cash before partnership creditors receive cash when
liquidating a partnership.
E. All cash payments to partners are made using their profit and loss ratio when liquidating
the partnership.

27. Which item is not shown on the schedule of partnership liquidation?


A. Current cash balances.
B. Property owned by the partnership.
C. Liabilities still to be paid.
D. Personal assets of the partners.
E. Current capital balances of the partners.

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Chapter 10 - Partnerships: Termination and Liquidation

28. Harding, Jones, and Sandy is in the process of liquidating and the partners have the
following capital balances; 24,000, 24,000, and (9,000) respectively. The partners share all
profits and losses 16%, 48%, and 36%, respectively. Sandy has indicated that the (9,000)
deficit will be covered with a forthcoming contribution. The remaining partners have
requested to immediately receive $20,000 in cash that is available. How should this cash be
distributed?
A. Harding $5,000; Jones $15,000.
B. Harding $17,000; Jones $3,000.
C. Harding $11,154; Jones $8,846.
D. Harding $14,297; Jones $5,703.
E. Harding $12,500; Jones $7,500.

29. Gonda, Herron, and Morse is considering possible liquidation because partner Morse is
personally insolvent. The partners have the following capital balances: $60,000, $70,000, and
$40,000, respectively, and share profits and losses 30%, 45%, and 25%, respectively. The
partnership has $200,000 in noncash assets that can be sold for $150,000. The partnership has
$10,000 cash on hand, and $40,000 in liabilities. What is the minimum that partner Morse's
creditors would receive if they have filed a claim for $50,000?
A. $0.
B. $27,500.
C. $45,000.
D. $47,500.
E. $50,000.

White, Sands, and Luke has the following capital balances and profit and loss ratios:
$60,000 (30%), $100,000 (20%) and $200,000 (50%).
The partnership has received a predistribution plan.

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Chapter 10 - Partnerships: Termination and Liquidation

30. How would $90,000 be distributed?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

31. How would $200,000 be distributed?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All
liabilities have been paid. The partners capital accounts are as follows Harry $40,000, Landers
$30,000 and Waters 15,000. The partners share profits and losses 4:4:2.

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Chapter 10 - Partnerships: Termination and Liquidation

32. If the building is sold for $50,000, how much cash will Harry receive in the final
settlement?
A. $5,000.
B. $9,000.
C. $18,000.
D. $28,000.
E. $55,000.

33. If the building is sold for $50,000, how much cash will Waters receive in the final
settlement?
A. $5,000.
B. $9,000.
C. $18,000.
D. $28,000.
E. $55,000.

A local partnership has assets of cash of $130,000 and land recorded at $700,000. All
liabilities have been paid and the partners are all personally insolvent. The partners' capital
accounts are as follows Roberts, $500,000, Ferry, $300,000 and Mones, $30,000. The partners
share profits and losses 5:3:2.

34. If the land is sold for $450,000, how much cash will Roberts receive in the final
settlement?
A. $0.
B. $30,000.
C. $217,500.
D. $362,500.
E. $502,500.

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Chapter 10 - Partnerships: Termination and Liquidation

35. If the land is sold for $450,000, how much cash will Mones receive in the final
settlement?
A. $0.
B. $15,000.
C. $300,000.
D. $217,500.
E. $362,500.

Matching Questions

36. A schedule should be produced periodically by the accountant to disclose losses and gains
that have been incurred, remaining assets and liabilities, and current capital balances::The
schedule of liquidation

1. One or more partners may have a negative capital


balance often as a result of losses incurred in Deficit capital
disposing of assets balances ____
2. A provision for an equitable distribution of assets Safe capital
during liquidation balances ____
3. At the start of a liquidation, this document provides
guidance for all payments made to the partners Predistribution
throughout the liquidation plan ____

Essay Questions

37. What is the role of the accountant during the liquidation process?

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Chapter 10 - Partnerships: Termination and Liquidation

38. The partnership of Rayne, Marin, and Fulton was being liquidated by the partners. Rayne
was insolvent and did not have enough assets to pay all his personal creditors. Under what
conditions might Rayne's personal creditors have claimed some of the partnership assets?

39. The Arnold, Bates, Carlton, and Delbert partnership was liquidating. It had paid all its
liabilities and had some assets yet to be sold. The partners had capital account balances of
($50,000), $90,000, $110,000, and $130,000. There was $40,000 cash available for
distribution to the partners. What procedures would be followed to determine the amount of
cash that could safely be distributed to each partner?

40. Xygote, Yen, and Zen were partners who were liquidating their partnership. Each partner
was insolvent. All assets had been liquidated and all liabilities had been paid. How should any
remaining cash have been distributed to the partners?

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Chapter 10 - Partnerships: Termination and Liquidation

41. What is the purpose of a predistribution plan?

42. What financial schedule would be prepared for a partnership that has begun liquidation
but has not yet completed the process? What is the purpose of this schedule?

43. What events or circumstances might force the termination of a partnership and liquidation
of its assets?

44. For a partnership, how should liquidation gains and losses be accounted for?

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Chapter 10 - Partnerships: Termination and Liquidation

45. What should occur when a solvent partner has a deficit balance?

46. Why is a Schedule of Liquidation prepared?

47. What is a safe cash payment?

48. The Albert, Boynton, and Creamer partnership was in the process of liquidating its assets
and going out of business. Albert, Boynton, and Creamer had capital account balances of
$80,000, $120,000, and $200,000, respectively, and shared profits and losses in the ratio of
1:3:2. Equipment that had cost $90,000 and had a book value of $60,000 was sold for $24,000
cash.
Required:
Prepare the appropriate journal entry to record the sale of the equipment, distributing any gain
or loss directly to the partners.

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Chapter 10 - Partnerships: Termination and Liquidation

49. The Amos, Billings, and Cleaver partnership had two assets: (1) cash of $40,000 and (2)
an investment with a book value of $110,000. The ratio for sharing profits and losses is 2:1:1.
The balances in the capital accounts were:
Amos, capital: $45,000
Billings, capital: $75,000
Cleaver, capital: $30,000
Required:
If the investment was sold for $80,000, how much cash would each partner have received?

As of January 1, 2011, the partnership of Canton, Yulls, and Garr had the following account
balances and percentages for the sharing of profits and losses:

The partnership incurred losses in recent years and decided to liquidate. The liquidation
expenses were expected to be $10,000.

50. How much of the existing cash balance could be distributed safely to partners at this
time?

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Chapter 10 - Partnerships: Termination and Liquidation

51. How much cash should each partner receive at this time, pursuant to a proposed schedule
of liquidation?

52. What would be the maximum amount Garr might have to contribute to the partnership to
eliminate a deficit balance in his account?

53. If the noncash assets are sold for $105,000, what would be the maximum amount of cash
that Canton could expect to receive?

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Chapter 10 - Partnerships: Termination and Liquidation

54. A partnership had the following account balances: Cash, $91,000; Other Assets, $702,000;
Liabilities, $338,000; Polk, Capital (50% of profits and losses), $221,000; Garfield, Capital
(30%), $143,000; Arthur, Capital (20%), $91,000. The company liquidated and $10,400
became available to the partners.
Required:
Who would have received the $10,400?

55. A partnership held three assets: Cash, $13,000; Land, $45,000; and a Building, $65,000.
There were no recorded liabilities. The partners anticipated that expenses required to liquidate
their partnership would amount to $6,000. Capital balances were as follows:
King, Capital: $32,700
Murphy, Capital: 36,400
Madison, Capital: 26,000
Pond, Capital: 27,900
The partners shared profits and losses 30:30:20:20, respectively.
Required:
Prepare a proposed schedule of liquidation, showing how cash could be safely distributed to
the partners at this time.

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Chapter 10 - Partnerships: Termination and Liquidation

On January 1, 2011, the partners of Won, Cadel, and Dax (who shared profits and losses in
the ratio of 5:3:2, respectively) decided to liquidate their partnership. The trial balance at this
date was as follows:

The partners planned a program of piecemeal conversion of the business assets to minimize
liquidation losses. All available cash, less an amount retained to provide for future expenses,
was to be distributed to the partners at the end of each month. A summary of liquidation
transactions follows:

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Chapter 10 - Partnerships: Termination and Liquidation

56. Prepare a schedule to calculate the safe payments to be made to the partners at the end of
January.

57. Prepare a schedule to calculate the safe installment payments to be made to the partners at
the end of February.

58. Prepare a schedule to calculate the safe payments to be made to the partners at the end of
March.

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Chapter 10 - Partnerships: Termination and Liquidation

Hardin, Sutton, and Williams has operated a local business as a partnership for several years.
All profits and losses have been allocated in a 3:2:1 ratio, respectively. Recently, Williams has
undergone personal financial problems, and is insolvent. To satisfy Williams' creditors, the
partnership has decided to liquidate.
The following balance sheet has been produced:

During the liquidation process, the following transactions take place:


- Noncash assets are sold for $116,000.
- Liquidation expenses of $12,000 are paid. No further expenses are expected.
- Safe capital distributions are made to the partners.
- Payment is made of all business liabilities.
- Any deficit capital balances are deemed to be uncollectible.

59. Develop a predistribution plan for this partnership, assuming $12,000 of liquidation
expenses are expected to be paid.

60. Compute safe cash payments after the noncash assets have been sold and the liquidation
expenses have been paid.

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61. Prepare journal entries to record the actual liquidation transactions.

62. Jones, Marge, and Tate LLP decided to dissolve and liquidate the partnership on
September 30, 2011. After realization of a portion of the noncash assets, the capital account
balances were Jones $50,000; Marge $40,000; and Tate $15,000. Cash of $35,000 and other
assets with a carrying amount of $100,000 were on hand. Creditors' claims totaled $30,000.
Jones, Marge, and Tate shared net income and losses in a 2:1:1 ratio, respectively.
Prepare a working paper to compute the amount of cash that may be paid to creditors and to
partners at this time, assuming that no partner is solvent.

The balance sheet of Rogers, Dennis & Berry LLP prior to liquidation included the
following:

The three partners shared net income and losses in a 5:3:2 ratio, respectively. Noncash assets
were sold for $60,000. Creditors were paid in full, partners were paid $35,000, and the
balance of cash was retained pending future developments.

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63. Record the journal entry for the sale of the noncash assets.

64. Record the journal entry for payment of outstanding liabilities to the creditors.

65. Determine the cash to be retained and prepare a schedule to distribute $35,000 cash to the
partners.

66. Record the journal entry for the cash distribution to the partners.

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Chapter 10 - Partnerships: Termination and Liquidation

The partners of Donald, Chief & Berry LLP decided to liquidate on August 1, 2011. The
balance sheet of the partnership is as follows, with the profit and loss ratio of 25%, 45%, and
30%, respectively.

The disposal of Other assets with a carrying amount of $200,000 realized $140,000, and all
available cash was distributed.

67. Prepare the journal entry for Donald, Chief & Berry LLP on August 1, 2011, to record the
realization of Other assets.

68. Prepare the journal entry for Donald, Chief & Berry LLP on August 1, 2011, to record
payment of liabilities.

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69. Prepare the journal entry for Donald, Chief & Berry LLP on August 1, 2011, to record the
offset of the loan receivable from Donald.

70. Prepare the schedule to compute the cash payments to the partners.

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Chapter 10 Partnerships: Termination and Liquidation Answer Key

Multiple Choice Questions

1. When a partnership is insolvent and a partner has a deficit capital balance, that partner is
legally required to:
A. declare personal bankruptcy.
B. initiate legal proceedings against the partnership.
C. contribute cash to the partnership.
D. deliver a note payable to the partnership with specific payment terms.
E. None of the above. The partner has no legal responsibility to cover the capital deficit
balance.

AACSB: Reflective thinking


AICPA BB: Legal
AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

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Chapter 10 - Partnerships: Termination and Liquidation

2. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the
following balance sheet:

Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation
expenses are expected to be $12,000.
If the noncash assets were sold for $234,000, what amount of the loss would have been
allocated to Bartle?
A. $43,200.
B. $46,800.
C. $40,000.
D. $42,400.
E. $43,100.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-01 Determine amounts to be paid to partners in a liquidation.

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3. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the
following balance sheet:

Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation
expenses are expected to be $12,000.
The noncash assets were sold for $134,000. Which partner(s) would have had to contribute
assets to the partnership to cover a deficit in his or her capital account?
A. Abrams.
B. Bartle.
C. Creighton.
D. Abrams and Creighton.
E. Abrams and Bartle.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

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Chapter 10 - Partnerships: Termination and Liquidation

4. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the
following balance sheet:

Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation
expenses are expected to be $12,000.
After the liquidation expenses of $12,000 were paid and the noncash assets sold, Creighton
had a deficit of $8,000. For what amount were the noncash assets sold?
A. $170,000.
B. $264,000.
C. $158,000.
D. $146,000.
E. $185,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Hard
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

10-34
Chapter 10 - Partnerships: Termination and Liquidation

5. The Keaton, Lewis, and Meador partnership had the following balance sheet just before
entering liquidation:

Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were
sold for $180,000. Liquidation expenses were $10,000.
Assume that Lewis was personally insolvent and could not contribute any assets to the
partnership, while Keaton and Meador were both solvent. What amount of cash would Keaton
have received from the distribution of partnership assets?
A. $38,000.
B. $30,000.
C. $24,000.
D. $34,000.
E. $31,600.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Hard
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

10-35
Chapter 10 - Partnerships: Termination and Liquidation

6. The Keaton, Lewis, and Meador partnership had the following balance sheet just before
entering liquidation:

Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were
sold for $60,000. How much will each partner receive in the liquidation?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

10-36
Chapter 10 - Partnerships: Termination and Liquidation

7. The Keaton, Lewis, and Meador partnership had the following balance sheet just before
entering liquidation:

Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. The partnership feels
confident it will be able to eventually sell the noncash assets and wants to distribute some
cash before paying liabilities. How much would each partner receive of a total $60,000
distribution of cash?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

10-37
Chapter 10 - Partnerships: Termination and Liquidation

The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following
account balances:

Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and
losses in a ratio of 2:4:4.

8. What amount of cash was available for safe payments, based on the above information?
A. $30,000.
B. $85,000.
C. $25,000.
D. $35,000.
E. $40,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

9. Before liquidating any assets, the partners determined the amount of cash available for safe
payments. How should the amount of safe cash payments be distributed?
A. In a ratio of 2:4:4 among all the partners.
B. $18,333 to Henry and $16,667 to Jacobs.
C. In a ratio of 1:2 between Henry and Jacobs.
D. $15,000 to Henry and $10,000 to Jacobs.
E. $21,667 to Henry and $3,333 to Jacobs.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Hard
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

10-38
Chapter 10 - Partnerships: Termination and Liquidation

10. Before liquidating any assets, the partners determined the amount of cash for safe
payments and distributed it. The noncash assets were then sold for $120,000, and the
liquidation expenses of $5,000 were paid. How much of the $120,000 would be distributed to
the partners? (Hint: Either a predistribution plan or a schedule of safe payments would be

appropriate for solving this item.)


A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Hard
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.
Learning Objective: 10-05 Develop a predistribution plan to guide the distribution of assets in a partnership liquidation.

The following account balances were available for the Perry, Quincy, and Renquist
partnership just before it entered liquidation:

Inlcuded in Perry's capital balance is a $20,000 partnership loan owed to Perry. Perry, Quincy,
and Renquist shared profits and losses in a ratio of 2:4:4. Liquidation expenses were expected
to be $15,000.
All partners were solvent.

10-39
Chapter 10 - Partnerships: Termination and Liquidation

11. What amount would noncash assets need to be sold for in order for any partner to receive
some cash?
A. $185,000
B. $170,000
C. $165,000
D. $95,000
E. $90,000

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

12. What would be the minimum amount for which the noncash assets must have been sold,
in order for Quincy to receive some cash from the liquidation?
A. Any amount in excess of $170,000.
B. Any amount in excess of $190,000.
C. Any amount in excess of $260,000.
D. Any amount in excess of $280,000.
E. Any amount in excess of $300,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Hard
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

A local partnership was in the process of liquidating and reported the following capital
balances:

Douglass indicated that the $14,000 deficit would be covered by a forthcoming contribution.
However, the two remaining partners asked to receive the $31,000 that was then in the cash
account.

10-40
Chapter 10 - Partnerships: Termination and Liquidation

13. How much of this money should Justice receive?


A. $15,467.
B. $15,533.
C. $17,333.
D. $16,533.
E. $15,867.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

14. How much of this money should Zobart receive?


A. $15,467.
B. $14,467.
C. $17,333.
D. $15,633.
E. $15,867.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

A local partnership was considering the possibility of liquidation since one of the partners
(Ding) was personally insolvent. Capital balances at that time were as follows. Profits and
losses were divided on a 4:2:2:2 basis, respectively.

Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time,
the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There
was no cash on hand at the time.

10-41
Chapter 10 - Partnerships: Termination and Liquidation

15. If the assets could be sold for $228,000, what is the minimum amount that Ding's creditors
would have received?
A. $36,000.
B. $0.
C. $2,500.
D. $38,720.
E. $67,250.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-01 Determine amounts to be paid to partners in a liquidation.

16. If the assets could be sold for $228,000, what is the minimum amount that Laurel's
creditors would have received?
A. $36,000.
B. $0.
C. $2,500.
D. $38,250.
E. $67,250.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-01 Determine amounts to be paid to partners in a liquidation.

17. If the assets could be sold for $228,000, what is the minimum amount that Ezzard's
creditors would have received?
A. $36,000.
B. $0.
C. $2,500.
D. $38,250.
E. $67,250.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-01 Determine amounts to be paid to partners in a liquidation.

10-42
Chapter 10 - Partnerships: Termination and Liquidation

18. If the assets could be sold, for $228,000 what is the minimum amount that Tillman's
creditors would have received?
A. $36,000.
B. $0.
C. $2,500.
D. $38,250.
E. $67,250.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-01 Determine amounts to be paid to partners in a liquidation.

19. Dancey, Reese, Newman, and Jahn were partners who shared profits and losses on a
4:2:2:2 basis, respectively. They were beginning to liquidate their business. At the start of the
process, capital balances were as follows:

Which one of the following statements is true for a predistribution plan?


A. The first available $16,000 would go to Newman.
B. The first available $20,000 would go to Dancey.
C. The first available $8,000 would go to Jahn.
D. The first available $8,000 would go to Newman.
E. The first available $4,000 would go to Jahn.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-05 Develop a predistribution plan to guide the distribution of assets in a partnership liquidation.

10-43
Chapter 10 - Partnerships: Termination and Liquidation

20. Dancey, Reese, Newman, and Jahn were partners who shared profits and losses on a
4:2:2:2 basis, respectively. They were beginning to liquidate their business. At the start of the
process, capital balances were as follows:

Which one of the following statements is true for a predistribution plan?


A. The first available $16,000 would go to Newman. The next $12,000 would go $8,000 to
Dancey and $4,000 to Newman. The following $32,000 would be shared by Dancey, Reese,
and Newman. The total distribution would be $60,000 before all four partners share any
further payments equally.
B. The first available $16,000 would go to Newman. The next $12,000 would go $8,000 to
Dancey and $4,000 to Newman. The following $32,000 would be shared by Dancey, Reese,
and Newman. The total distribution would be $60,000 before all four partners share any
further payments in their profit and loss sharing ratios.
C. The first $20,000 would go to Newman. The next $8,000 would go to Dancey. The next
$12,000 would be shared by Dancey, Reese, and Newman. The total distribution would be
$40,000 before all four partners share any further payments equally.
D. The first available $8,000 would go to Newman. The next $4,000 would be split equally
between Dancey and Newman. The following $12,000 would be shared by Dancey, Reese,
and Newman. The total distribution would be $24,000 before all four partners share any
further payments equally.
E. The first available $8,000 would go to Newman. The next $4,000 would be split equally
between Dancey and Newman. The following $12,000 would be shared by Dancey, Reese,
and Newman. The total distribution would be $24,000 before all four partners share any
further payments in their profit and loss sharing ratios.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-05 Develop a predistribution plan to guide the distribution of assets in a partnership liquidation.

10-44
Chapter 10 - Partnerships: Termination and Liquidation

21. Which of the following will not result in the termination and liquidation of a partnership?
1) Partners are incompatible and choose to cease operations.
2) There are excessive losses that are expected to continue.
3) Retirement of a partner.
A. 1 only
B. 1 and 2 only
C. 2 and 3 only
D. 3 only
E. 1, 2, and 3

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 10-01 Determine amounts to be paid to partners in a liquidation.

22. What accounting transactions are not recorded by an accountant during partnership
liquidation?
A. The conversion of partnership assets into cash.
B. The allocation of gains and losses from sales of assets.
C. The payment of liabilities and expenses.
D. The initiation of legal action by creditors of the partnership.
E. Writeoff of remaining unpaid debts.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

10-45
Chapter 10 - Partnerships: Termination and Liquidation

23. Which of the following statements is false concerning the partnership Schedule of
Liquidation?
A. Liquidations may take a considerable length of time to complete.
B. Frequent reporting by the accountant is rarely necessary.
C. The Schedule of Liquidation provides a listing of transactions to date, current cash, and
capital balances.
D. The Schedule of Liquidation provides a listing of property still held by the partnership as
well as liabilities remaining unpaid.
E. The Schedule of Liquidation keeps creditors and partners apprised of the results of the
process of dissolution.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

24. What is the preferred method of resolving a partner's deficit balance, according to the
Uniform Partnership Act?
A. Partners never have a deficit balance.
B. The other partners must contribute personal assets to cover the deficit balance.
C. The partnership must sell assets in order to cover the deficit balance.
D. The partner with a deficit balance must contribute personal assets to cover the deficit
balance.
E. The partner with a deficit balance contributes personal assets only if those personal assets
exceed personal liabilities.

AACSB: Reflective thinking


AICPA BB: Legal
AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

10-46
Chapter 10 - Partnerships: Termination and Liquidation

25. Which of the following statements is true concerning the distribution of safe payments?
A. The distribution of safe payments assumes that any capital deficit balances will prove to be
a total loss to the partnership.
B. Safe payments are equal to the recorded capital balances of partners with positive capital
balances.
C. The distribution of safe payments may only be made after all liabilities have been paid.
D. In computing safe payments, partners with positive capital balances are assumed to absorb
an equal share of any deficit balance(s).
E. There are no safe payments until the liquidation is complete.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

26. Which one of the following statements is correct?


A. If a partner of a liquidating partnership is unable to pay a capital account deficit, the deficit
is absorbed by the other partners in the profit and loss ratio of those partners.
B. Gains and losses from the sale of noncash assets are divided in the ratio of the partners'
capital account balances if there is no income-sharing plan in the partnership contract.
C. A loan receivable from a partner is added to the partner's capital account balance in the
preparation of a cash distribution plan.
D. Partners may not receive any cash before partnership creditors receive cash when
liquidating a partnership.
E. All cash payments to partners are made using their profit and loss ratio when liquidating
the partnership.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

10-47
Chapter 10 - Partnerships: Termination and Liquidation

27. Which item is not shown on the schedule of partnership liquidation?


A. Current cash balances.
B. Property owned by the partnership.
C. Liabilities still to be paid.
D. Personal assets of the partners.
E. Current capital balances of the partners.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

28. Harding, Jones, and Sandy is in the process of liquidating and the partners have the
following capital balances; 24,000, 24,000, and (9,000) respectively. The partners share all
profits and losses 16%, 48%, and 36%, respectively. Sandy has indicated that the (9,000)
deficit will be covered with a forthcoming contribution. The remaining partners have
requested to immediately receive $20,000 in cash that is available. How should this cash be
distributed?
A. Harding $5,000; Jones $15,000.
B. Harding $17,000; Jones $3,000.
C. Harding $11,154; Jones $8,846.
D. Harding $14,297; Jones $5,703.
E. Harding $12,500; Jones $7,500.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Hard
Learning Objective: 10-05 Develop a predistribution plan to guide the distribution of assets in a partnership liquidation.

10-48
Chapter 10 - Partnerships: Termination and Liquidation

29. Gonda, Herron, and Morse is considering possible liquidation because partner Morse is
personally insolvent. The partners have the following capital balances: $60,000, $70,000, and
$40,000, respectively, and share profits and losses 30%, 45%, and 25%, respectively. The
partnership has $200,000 in noncash assets that can be sold for $150,000. The partnership has
$10,000 cash on hand, and $40,000 in liabilities. What is the minimum that partner Morse's
creditors would receive if they have filed a claim for $50,000?
A. $0.
B. $27,500.
C. $45,000.
D. $47,500.
E. $50,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

White, Sands, and Luke has the following capital balances and profit and loss ratios:
$60,000 (30%), $100,000 (20%) and $200,000 (50%).
The partnership has received a predistribution plan.

10-49
Chapter 10 - Partnerships: Termination and Liquidation

30. How would $90,000 be distributed?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-05 Develop a predistribution plan to guide the distribution of assets in a partnership liquidation.

31. How would $200,000 be distributed?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-05 Develop a predistribution plan to guide the distribution of assets in a partnership liquidation.

10-50
Chapter 10 - Partnerships: Termination and Liquidation

A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All
liabilities have been paid. The partners capital accounts are as follows Harry $40,000, Landers
$30,000 and Waters 15,000. The partners share profits and losses 4:4:2.

32. If the building is sold for $50,000, how much cash will Harry receive in the final
settlement?
A. $5,000.
B. $9,000.
C. $18,000.
D. $28,000.
E. $55,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

33. If the building is sold for $50,000, how much cash will Waters receive in the final
settlement?
A. $5,000.
B. $9,000.
C. $18,000.
D. $28,000.
E. $55,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

A local partnership has assets of cash of $130,000 and land recorded at $700,000. All
liabilities have been paid and the partners are all personally insolvent. The partners' capital
accounts are as follows Roberts, $500,000, Ferry, $300,000 and Mones, $30,000. The partners
share profits and losses 5:3:2.

10-51
Chapter 10 - Partnerships: Termination and Liquidation

34. If the land is sold for $450,000, how much cash will Roberts receive in the final
settlement?
A. $0.
B. $30,000.
C. $217,500.
D. $362,500.
E. $502,500.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

35. If the land is sold for $450,000, how much cash will Mones receive in the final
settlement?
A. $0.
B. $15,000.
C. $300,000.
D. $217,500.
E. $362,500.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

10-52
Chapter 10 - Partnerships: Termination and Liquidation

Matching Questions

36. A schedule should be produced periodically by the accountant to disclose losses and gains
that have been incurred, remaining assets and liabilities, and current capital balances::The
schedule of liquidation

1. One or more partners may have a negative capital


balance often as a result of losses incurred in disposing of Deficit capital
assets balances 1
2. A provision for an equitable distribution of assets Safe capital
during liquidation balances 2
3. At the start of a liquidation, this document provides
guidance for all payments made to the partners Predistribution
throughout the liquidation plan 3

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

Essay Questions

37. What is the role of the accountant during the liquidation process?

The accountant works to ensure the equitable treatment of all parties involved in the
liquidation. The accountant is responsible for recording and reporting the conversion of
partnership assets into cash, the allocation of gains and losses, the payment of liabilities and
expenses, and any remaining unpaid debts and distributions to the partners.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 10-01 Determine amounts to be paid to partners in a liquidation.

10-53
Chapter 10 - Partnerships: Termination and Liquidation

38. The partnership of Rayne, Marin, and Fulton was being liquidated by the partners. Rayne
was insolvent and did not have enough assets to pay all his personal creditors. Under what
conditions might Rayne's personal creditors have claimed some of the partnership assets?

Rayne's personal creditors might have claimed some partnership assets if Rayne had a credit
balance in his capital account.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Synthesis
Difficulty: Easy
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

39. The Arnold, Bates, Carlton, and Delbert partnership was liquidating. It had paid all its
liabilities and had some assets yet to be sold. The partners had capital account balances of
($50,000), $90,000, $110,000, and $130,000. There was $40,000 cash available for
distribution to the partners. What procedures would be followed to determine the amount of
cash that could safely be distributed to each partner?

To determine the amount of cash that can be safely distributed to each partner, one should
assume that maximum losses will be realized on the disposal of noncash assets, estimate
liquidation expenses, and assume that any partners with deficit balances cannot pay them.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

10-54
Chapter 10 - Partnerships: Termination and Liquidation

40. Xygote, Yen, and Zen were partners who were liquidating their partnership. Each partner
was insolvent. All assets had been liquidated and all liabilities had been paid. How should any
remaining cash have been distributed to the partners?

All partners with deficits in their capital accounts should transfer personal assets to the
partnership to eliminate their deficits. Then each partner should receive an amount of cash
equal to his or her capital balance.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

41. What is the purpose of a predistribution plan?

The purpose of a predistribution plan is to determine how assets should be distributed to


creditors and partners as the partnership's noncash assets are realized. A predistribution plan
would be particularly useful for a liquidation that takes a long time to complete.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 10-05 Develop a predistribution plan to guide the distribution of assets in a partnership liquidation.

42. What financial schedule would be prepared for a partnership that has begun liquidation
but has not yet completed the process? What is the purpose of this schedule?

The appropriate financial schedule is a schedule of liquidation. The purpose of this schedule is
to report to partners and creditors on the progress of the liquidation to date, summarizing the
various transactions that have occurred.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

10-55
Chapter 10 - Partnerships: Termination and Liquidation

43. What events or circumstances might force the termination of a partnership and liquidation
of its assets?

There are many events or situations that can lead to the termination of a partnership and the
liquidation of its assets. These circumstances include insolvency of the partnership and
dissension among the partners. A partnership would be liquidated if it was formed to
accomplish a specific purpose and has no further usefulness. Liquidation of the partnership
may be required whenever there is a large claim against the partnership's assets. Such a claim
might occur through the loss of a lawsuit and the payment of a large judgment, the insolvency
of a partner, or the death or retirement of a partner.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 10-01 Determine amounts to be paid to partners in a liquidation.

44. For a partnership, how should liquidation gains and losses be accounted for?

Gains and losses on the liquidation of assets should be allocated to the partners' capital
accounts using the profit and loss sharing ratio.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

45. What should occur when a solvent partner has a deficit balance?

The partner should contribute personal assets to the extent of the deficit balance.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

10-56
Chapter 10 - Partnerships: Termination and Liquidation

46. Why is a Schedule of Liquidation prepared?

To provide information to the creditors and partners about liquidation transactions to date,
property still held by the partnership, liabilities remaining to be paid, and current cash and
capital balances.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

47. What is a safe cash payment?

A safe cash payment is a fair allocation of funds made available before liquidation has been
completed. Safe cash payments are based on the assumption that any capital deficits will
prove to be a total loss to the partnership and must be absorbed by the remaining partners
based on their relative profit and loss ratio.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

10-57
Chapter 10 - Partnerships: Termination and Liquidation

48. The Albert, Boynton, and Creamer partnership was in the process of liquidating its assets
and going out of business. Albert, Boynton, and Creamer had capital account balances of
$80,000, $120,000, and $200,000, respectively, and shared profits and losses in the ratio of
1:3:2. Equipment that had cost $90,000 and had a book value of $60,000 was sold for $24,000
cash.
Required:
Prepare the appropriate journal entry to record the sale of the equipment, distributing any gain
or loss directly to the partners.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

10-58
Chapter 10 - Partnerships: Termination and Liquidation

49. The Amos, Billings, and Cleaver partnership had two assets: (1) cash of $40,000 and (2)
an investment with a book value of $110,000. The ratio for sharing profits and losses is 2:1:1.
The balances in the capital accounts were:
Amos, capital: $45,000
Billings, capital: $75,000
Cleaver, capital: $30,000
Required:
If the investment was sold for $80,000, how much cash would each partner have received?

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

As of January 1, 2011, the partnership of Canton, Yulls, and Garr had the following account
balances and percentages for the sharing of profits and losses:

The partnership incurred losses in recent years and decided to liquidate. The liquidation
expenses were expected to be $10,000.

10-59
Chapter 10 - Partnerships: Termination and Liquidation

50. How much of the existing cash balance could be distributed safely to partners at this
time?

The amount of cash that could be distributed to partners at this time = current cash balance
$80,000 - liabilities $47,000 - estimate for liquidation expenses $10,000 = $23,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-01 Determine amounts to be paid to partners in a liquidation.

51. How much cash should each partner receive at this time, pursuant to a proposed schedule
of liquidation?

To determine the amount to be distributed to partners, assuming maximum losses on


liquidation:

The entire $23,000 should be distributed to Canton.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

10-60
Chapter 10 - Partnerships: Termination and Liquidation

52. What would be the maximum amount Garr might have to contribute to the partnership to
eliminate a deficit balance in his account?

The maximum amount that Garr might have to contribute to eliminate a deficit would be
$84,000, assuming that the noncash assets cannot be sold and become a total loss to the
partnership.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

53. If the noncash assets are sold for $105,000, what would be the maximum amount of cash
that Canton could expect to receive?

The maximum amount that Canton could expect to recover is $105,000. This assumes that
Garr can cover his deficit:

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

10-61
Chapter 10 - Partnerships: Termination and Liquidation

54. A partnership had the following account balances: Cash, $91,000; Other Assets, $702,000;
Liabilities, $338,000; Polk, Capital (50% of profits and losses), $221,000; Garfield, Capital
(30%), $143,000; Arthur, Capital (20%), $91,000. The company liquidated and $10,400
became available to the partners.
Required:
Who would have received the $10,400?

Since the partnership had total capital of $455,000, the $10,400 that was available would have
indicated maximum potential losses of $444,600.

The $10,400 would have gone to Garfield ($8,840) and Arthur ($1,560).

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-05 Develop a predistribution plan to guide the distribution of assets in a partnership liquidation.

10-62
Chapter 10 - Partnerships: Termination and Liquidation

55. A partnership held three assets: Cash, $13,000; Land, $45,000; and a Building, $65,000.
There were no recorded liabilities. The partners anticipated that expenses required to liquidate
their partnership would amount to $6,000. Capital balances were as follows:
King, Capital: $32,700
Murphy, Capital: 36,400
Madison, Capital: 26,000
Pond, Capital: 27,900
The partners shared profits and losses 30:30:20:20, respectively.
Required:
Prepare a proposed schedule of liquidation, showing how cash could be safely distributed to
the partners at this time.

Murphy received $700, Madison received $2,200, and Pond received $4,100.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

10-63
Chapter 10 - Partnerships: Termination and Liquidation

On January 1, 2011, the partners of Won, Cadel, and Dax (who shared profits and losses in
the ratio of 5:3:2, respectively) decided to liquidate their partnership. The trial balance at this
date was as follows:

The partners planned a program of piecemeal conversion of the business assets to minimize
liquidation losses. All available cash, less an amount retained to provide for future expenses,
was to be distributed to the partners at the end of each month. A summary of liquidation
transactions follows:

10-64
Chapter 10 - Partnerships: Termination and Liquidation

56. Prepare a schedule to calculate the safe payments to be made to the partners at the end of
January.

10-65
Chapter 10 - Partnerships: Termination and Liquidation

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Hard
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

57. Prepare a schedule to calculate the safe installment payments to be made to the partners at
the end of February.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

10-66
Chapter 10 - Partnerships: Termination and Liquidation

58. Prepare a schedule to calculate the safe payments to be made to the partners at the end of
March.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

10-67
Chapter 10 - Partnerships: Termination and Liquidation

Hardin, Sutton, and Williams has operated a local business as a partnership for several years.
All profits and losses have been allocated in a 3:2:1 ratio, respectively. Recently, Williams has
undergone personal financial problems, and is insolvent. To satisfy Williams' creditors, the
partnership has decided to liquidate.
The following balance sheet has been produced:

During the liquidation process, the following transactions take place:


- Noncash assets are sold for $116,000.
- Liquidation expenses of $12,000 are paid. No further expenses are expected.
- Safe capital distributions are made to the partners.
- Payment is made of all business liabilities.
- Any deficit capital balances are deemed to be uncollectible.

10-68
Chapter 10 - Partnerships: Termination and Liquidation

59. Develop a predistribution plan for this partnership, assuming $12,000 of liquidation
expenses are expected to be paid.

(1.) The first $92,000 pays for liabilities and liquidation expenses.
(2.) The next $28,500 goes to Hardin.
(3.) The next $32,500 goes to Hardin (60%) and Sutton (40%).
(4.) The remainder goes to all three partners in their 3:2:1 ratio.
Schedule A:
Partner

Schedule B:
Partner

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-05 Develop a predistribution plan to guide the distribution of assets in a partnership liquidation.

10-69
Chapter 10 - Partnerships: Termination and Liquidation

60. Compute safe cash payments after the noncash assets have been sold and the liquidation
expenses have been paid.

Safe Cash Payments:

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-03 Determine the distribution of available cash when one or more partners have a deficit capital balance or become
personally insolvent.

10-70
Chapter 10 - Partnerships: Termination and Liquidation

61. Prepare journal entries to record the actual liquidation transactions.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

10-71
Chapter 10 - Partnerships: Termination and Liquidation

62. Jones, Marge, and Tate LLP decided to dissolve and liquidate the partnership on
September 30, 2011. After realization of a portion of the noncash assets, the capital account
balances were Jones $50,000; Marge $40,000; and Tate $15,000. Cash of $35,000 and other
assets with a carrying amount of $100,000 were on hand. Creditors' claims totaled $30,000.
Jones, Marge, and Tate shared net income and losses in a 2:1:1 ratio, respectively.
Prepare a working paper to compute the amount of cash that may be paid to creditors and to
partners at this time, assuming that no partner is solvent.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

10-72
Chapter 10 - Partnerships: Termination and Liquidation

The balance sheet of Rogers, Dennis & Berry LLP prior to liquidation included the
following:

The three partners shared net income and losses in a 5:3:2 ratio, respectively. Noncash assets
were sold for $60,000. Creditors were paid in full, partners were paid $35,000, and the
balance of cash was retained pending future developments.

63. Record the journal entry for the sale of the noncash assets.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

64. Record the journal entry for payment of outstanding liabilities to the creditors.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

10-73
Chapter 10 - Partnerships: Termination and Liquidation

65. Determine the cash to be retained and prepare a schedule to distribute $35,000 cash to the
partners.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

66. Record the journal entry for the cash distribution to the partners.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

10-74
Chapter 10 - Partnerships: Termination and Liquidation

The partners of Donald, Chief & Berry LLP decided to liquidate on August 1, 2011. The
balance sheet of the partnership is as follows, with the profit and loss ratio of 25%, 45%, and
30%, respectively.

The disposal of Other assets with a carrying amount of $200,000 realized $140,000, and all
available cash was distributed.

67. Prepare the journal entry for Donald, Chief & Berry LLP on August 1, 2011, to record the
realization of Other assets.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

10-75
Chapter 10 - Partnerships: Termination and Liquidation

68. Prepare the journal entry for Donald, Chief & Berry LLP on August 1, 2011, to record
payment of liabilities.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

69. Prepare the journal entry for Donald, Chief & Berry LLP on August 1, 2011, to record the
offset of the loan receivable from Donald.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 10-02 Prepare journal entries to record the transactions incurred in the liquidation of a partnership.

10-76
Chapter 10 - Partnerships: Termination and Liquidation

70. Prepare the schedule to compute the cash payments to the partners.

Total cash of $70,000 can be safely distributed. Beginning cash $60,000 + sale of assets
$140,000 - payment of liabilities $130,000 = $70,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Hard
Learning Objective: 10-04 Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary
distribution of available partnership assets.

10-77