Name:____________________________________________ Date:______________

Section:___________________ Score: _____________

Instruction: Read each question carefully. Encircle the letter of the correct answer
1. The partner who has priority to first receive cash distribution under an advance
cash distribution plan is the partner who?
A. Can absorb the largest liquidation loss
B. Can absorb the lowest liquidation loss
C. Can’t absorb the largest liquidation loss
D. Can’t absorb the lowest liquidation loss

2. Statement 1: The cash priority program allows the priority of cash distribution
to the partner who has the least absorption capacity.
Statement 2: There is always a loss on realization when noncash assets are converted
into cash during the liquidation process.
A. Only statement 2 is correct B. Only statement 1 is correct
C. Both statements are incorrect D. Both statements are correct

3. Statement 1: In case the partnership is insolvent, the limited partner are liable
to pay the partnership creditors from his/her personal properties.
Statement 2: A defiecient partner may apply the right of offset to a loan balance
owing to him/her by the partnership.
A. Only statement 2 is correct B. Only statement 1 is correct
C. Both statements are incorrect D. Both statements are correct

4. If a partner with a debit capital balance during liquidation is personally

solvent, the
A. partner must invest additional assets in the partnership.
B. partner's debit balance will be allocated to the other partners.
C. other partners will give the partner enough cash to absorb the debit balance.
D. partnership will loan the partner enough cash to absorb the debit balance
5. In an advance plan for installment distributions of cash to partners of a
liquidating partnership, each partner's loss absorption potential is computed by
A. dividing each partner's capital account balance by the percentage of that
partner's capital account balance to total partners' capital.
B. multiplying each partner's capital account balance by the percentage of that
partner's capital account balance to total partners' capital.
C. dividing the total of each partner's capital account less receivables from the
partner plus payables to the partner by the partner's profit and loss percentage.
D. some other method.

6. Which of the following is not a part of Which of the following is not a part of
the partnership liquidation processthe partnership liquidation processa.
A. Allocation of any remaining profit or loss to partners’ capital acAllocation of
any remaining profit or loss to partners’ capital accountscounts
B. Liquidation of noncash assetsLiquidation of noncash assets
C. Closing the accounting recordsClosing the accounting records
D. Recognition of market value adjustments of assets and Recognition of market value
adjustments of assets and liabilities

7. Which of the following is not correct with respect to an installment liquidation

of a partnership?
A. All remaining liquidation expenses are anticipated
B. All non-cash assets are assumed to be worthless
C. Distribution to partners are always made according to their profit sharing
percentage
D. Partners with the greatest ability to absorb losses and expenses are first to
receive installment distributions.

8. Which of the following is not part of the calculation to determine the loss
absorption balance when preparing a cash distribution plan?
A. Loans to partners by the partnership or loans to the partnership by the partner
B. Partner capital accouont balances
C. Partner profit and loss residual ratios
D. All of the above are considered when calulating the loss absorption power.
9. A method of liquidation wherein the partners’ claims are settled on an basis as
non-cash assets are realized and as cash becomes available, but only after all
liabilities are fully settled.
A. Lump-Sum Method
B. Installment Method
C. Both choices are correct
D. Neither of the choices are correct

10. Partners Biore and Selisana each have a P450,000 capital balance and share
profits and losses in a 3:2 ratio, respectively. Cash equals P150,000, noncash
assets equal P1,500,000 and liabilities equal P750,000. If the noncash assets are
sold for P1,000,000, the change in Selisana’s capital account will be?

A. An decrease of 200,000
B. An increase of 200,000
C. An decrease of 150,000
D. An increase of 150,000

11.In installment liquidation of a partnership, each installment of cash is

distributed
A. In the partners profit and loss ratio
B. In the ratio of partners’capital account balances
C. As guaranteed by partners
D. As if no more cash would be forthcoming.

12. 1. In the liquidation of a partnership, it is necessary to

1) distribute cash to the partners,
2) sell non- cash assets,
3) allocate any gain or loss on realization to the partners,
4) pay liabilities. These steps should be performed in the following order:
A. 1 2 3 4 B. 4 1 2 3
C. 2 3 4 1 D. 3 2 1 4

13. Under the rule of offset, what is the proper disposition of a partnership loan
that was madefrom a partner who has a debit balance?
a. The loan is first paid to the debtor partner before cash payments are made to
partners.
b. The loan is written off as a partnership loss if the partner does not have the
cashto cover the debit balance.
c. The loan is charged off to the capital accounts of all the partners in their
profit and losssharing ratios.
d. The loan is charged off to the capital account of the debtor partner.

14.Offsetting a partner’s loan balance against his debit capital balance is referred
to as the:
A. Marshalling of assets B. Right of offset
C. Allocation of assets D. Liquidation of assets

15. Liquidation of a partnership includes all of the following steps, except.

A.Obtaining court approval
B. Selling the partnership’s non-cash assets
C. Paying the partnership liabilities
D.. Distributing the remaining cash to partners
Illustration 1 (5 points): The partnership of Kali, Vanga, Cora, and Tan was formed
several years ago. Some of the partners have recently undergone personal financial
problems and decided to terminate operations and liquidate the business. Kali, Vanga,
Cora, and Tan divide profits 30%, 10%, 20%, and 40% respectively. The following
statement of financial position is drawn up as a guideline for this process:

ASSETS LIABILITIES AND CAPITAL

Cash 15,000 Liabilities 74,000
A/R 82,000 Cora, loan 35,000
Inventory 101,000 Kali, Capital 120,000
PPE 253,000 Vang, Capital 88,000
Cora, Capital 74,000
Tan, Capital 60,000
Total assets 451,000 Total liabilities 451,000
At the time liquidation commences, expenses of P16,000 are anticipated as being
necessary to dispose all property.
Requirement:
Prepare cash distribution for this partnership.

Illustration 2 (5 points): The partners of BFJ Partnership feel that it is no longer

financially feasible to continue operations and have agreed to liquidate the
partnership. The balance sheet on December 1, 2024, just prior to the start of
liquidation is presented below. Partners Babe, Fearl, and John share profit and loss
in the ratio of 5:3:2 respectively.

ASSETS LIABILITIES AND CAPITAL

Cash 100,000 Liabilities 150,000
Noncash Assets 650,000 Loan Payable to 25,000
Babe
Babe, Capital 175,000
Fearl, Capital 300,000
John, Capital 750,000
Total Assets 750,000 Total Liabilities 100,000
and Capital
Requirements:
1. Prepare a cash priority program showing how cash will be distributed to the
partners as it becomes available.
2. If the first sale of noncash assets with a book value of P400,000 realizes
P230,000 and available cash is distributed, determine the amount of cash to be
distributed to each partner.
3. Prepare the entries to record the distribution to the partners.