E15-1 Multiple-Choice Questions on Partnership Liquidations

1.

Joan
Profit ratio

2.

Thomas

50%

10%

Total
100%

Prior capital
Loss on sale
of inventory

(160,000)

(45,000)

(55,000)

(260,000)

24,000
(136,000)

30,000
(15,000)

6,000
(49,000)

60,000
(200,000)

Prior capital
Loss on sale
of inventory

(160,000)

(45,000)

(55,000)

(260,000)

72,000
(88,000)

90,000
45,000

18,000
(37,000)

180,000
(80,000)

9,000
(28,000)

(80,000)

Allocate Charles'
capital deficit:
Joan = 0.40/0.50
Thomas = 0.10/.050
3.

40%

Charles

Prior capital
Loss on sale
of inventory
Possible loss
of remaining
inventory
Allocate Charles'
potential
capital deficit:

36,000
(52,000)

(45,000)
-0-

(160,000)

(45,000)

(55,000)

(260,000)

24,000
(136,000)

30,000
(15,000)

6,000
(49,000)

60,000
(200,000)

64,000
(72,000)

80,000
65,000

16,000
(33,000)

160,000
(40,000)

52,000
(20,000)

(65,000)
-0-

13,000
(20,000)

(40,000)

4.

The safe payments computations include consideration of the partners loss

absorption power and the priority of intervening cash distributions before the
last cash distribution.

5.

The loan payable to Adam has the same legal status as the partnerships
other liabilities according to the UPA of 1997, but is likely subordinated to the
partnerships outside liabilities. After payment of the accounts payable, the
deficit balance in Adams capital account needs to be remedied either
through cash contribution or setoff against the loan. If Adam were to
contribute additional cash to eliminate his deficit, answer a would be
correct. However, since the problem does not mention a cash contribution,
setoff is the only remedy for the deficit and answer c is the best solution.

6.

Partnership creditors have first claim to partnership assets

7.

After the settlement of accounts, partners are required to make additional

contributions to the partnership to satisfy partnership obligations.

16-1

E15-2
1.

Multiple-Choice Questions on Partnership Liquidation

[AICPA Adapted]

Casey
Profit and loss ratio
Beginning capital
Actual loss on assets
Potential loss on
other assets
Balances
Safe payments

2.

3.

Edwards

(80,000)
15,000

(90,000)
9,000

(70,000)
6,000

50,000
(15,000)
15,000

30,000
(51,000)
51,000

20,000
(44,000)
44,000

Blythe

Cooper

Art
Profit and loss ratio

Dithers

40%

40%

20%

Capital balances

(37,000)

(65,000)

(48,000)

Loss absorption power

Loss to reduce C to B:
(77,500 x 0.20 = 15,500)
Balances
Loss to reduce B & C to A:
(B:70,000 x 0.40 = 28,000)
(C:70,000 x 0.20 = 14,000)
Balances

(92,500)

(162,500)

(240,000)

(92,500)

(162,500)

77,500
(162,500)

70,000
(92,500)

(92,500)

70,000
(92,500)

Cash of $20,000 after settlement of liabilities: Cooper receives first $15,500;

remaining $4,500 split 2/3 to Blythe and 1/3 to Cooper.
4.

Cash of $17,000: Cooper receives first $15,500; remaining $1,500 split 2/3 to
Blythe and 1/3 to Cooper.

5.

If all partners received cash after the second sale, then the remaining $12,000
is distributed in the loss ratio.

6.

Arnie
Profit and loss ratio
Capital balances
Loss of $100,000
Remaining equities

40%
(40,000)
40,000
-0-

Bart
30%
(180,000)
30,000
(150,000)

Arnie will receive nothing; the entire $150,000 will be paid to Bart.

Kurt
30%
(30,000)
30,000
-0-

E15-3 Computing Alternative Cash Distributions to Partners

Capital Balances
Bracken
Louden
40%
30%
a

Capital balances before sale of equipment

Equipment sold for $30,000;
allocation of $10,000 loss
Capital balances after sale
Final distribution of cash

Menser
30%

(25,000)

(5,000)

(10,000)

4,000
(21,000)
21,000

3,000
(2,000)
2,000

3,000
(7,000)
7,000

b. Capital balances before sale of equipment

Equipment sold for $21,000;
allocation of $19,000 loss
Capital balances after sale
Allocate capital deficit of Louden:
4/7 x $700
3/7 X $700
Capital balances after allocation of Louden's deficit
Final distribution of cash

(25,000)

(5,000)

(10,000)

7,600
(17,400)

5,700
700
(700)

5,700
(4,300)

400
______
(17,000)
17,000

______
____-0_-0-

_ 300
_(4,000)
4,000

c.

(25,000)

(5,000)

(10,000)

13,200
(11,800)

9,900
4,900
(4,900)

9,900
(100)

2,800
______
(9,000)

______
-0-

2,000
(7,000)
7,000

_____
___-0-0-

2,100
2,000
(2,000)
_____
___-0-0-

Capital balances before sale of equipment

Equipment sold for $7,000;
allocation of $33,000 loss
Capital balances after sale
Allocate capital deficit of Louden:
4/7 x $4,900
3/7 X $4,900
Capital balances after allocation of Louden's deficit
Allocate capital deficit of Menser:
4/4 x $2,000
Capital balances after allocation of Menser's deficit
Final distribution of cash

(Parentheses indicate credit amount.)

E15-4 Lump-Sum Liquidation

a.

BG Land Development Company

Statement of Partnership Realization and Liquidation
Lump-Sum Distribution

Balances
Sale of assets at a
$40,000 loss
Payment to creditors
Outside Creditors
Mitchell
Payment to partners
Balances

Capital Balances
Matthews
Mitchell
Michaels
50%
30%
20%

Cash

Noncash
Assets

Accounts
Payable

Mitchell,
Loan

20,000

150,000

(30,000)

(10,000)

(80,000)

(36,000)

(14,000)

110,000
130,000

(150,000)
-0-

(30,000)

(10,000)

20,000
(60,000)

12,000
(24,000)

8,000
(6,000)

10,000
-0-

(60,000)

(24,000)

(6,000)

60,000
-0-

24,000
-0-

6,000
-0-

(30,000)
(10,000)
90,000

-0-

-0-

(90,000)
-0-

-0-

-0-

(Parentheses indicate credit amount.)

30,000

-0-

E15-4 (continued)
b.

(1)

(2)

(3)

Cash
Matthews, Capital
Mitchell, Capital
Michaels, Capital
Noncash Assets
Sell noncash assets at a loss of $40,000.

110,000
20,000
12,000
8,000

Accounts Payable
Mitchell, Loan
Cash
Pay creditors, including Mitchell.

30,000
10,000

Matthews, Capital
Mitchell, Capital
Michaels, Capital
Cash
Final lump-sum distribution to partners.

60,000
24,000
6,000

150,000

40,000

90,000