Quiz 3

NAME:__________________________________________________ Program, Yr & Sec_________________
1. Which of the following statements is correct?

I. Personal creditors have first claim on partnership assets.
II. Partnership creditors have first claim on partnership assets.
III. Partnership creditors have first claim on personal assets.
a. I b. II c. III d. Both II and III
2. The first step in the liquidation process is to
a. convert noncash assets into cash.
b. pay partnership creditors
c. assess the value of the assets and compute any net income (loss) up to the date of dissolution.
d. allocate any gains or losses to the partners.
3. A schedule prepared each time cash is to be distributed is called a(n)
a. advance cash distribution schedule. c. loss absorption potential schedule.
b. marshaling of assets schedule. d. safe payment schedule.
4. An advance cash distribution plan is prepared
a. each time cash is distributed to partners in an installment liquidation.
b. each time a partnership asset is sold in an installment liquidation.
c. to determine the order and amount of cash each partner will receive as it becomes available for distribution.
d. none of these.
5. The first step in preparing an advance cash distribution plan is to
a. determine the order in which partners are to participate in cash distributions.
b. compute the amount of cash each partner is to receive as it becomes available for distribution.
c. allocate any gains (losses) to the partners in their profit-sharing ratio.
d. determine the net capital interest of each partner.
6. Offsetting a partner's loan balance against his debit capital balance is referred to as the
a. marshaling of assets b. right of offset c. allocation of assets d. liquidation of assets
7. 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.
8. In a partnership liquidation, the final cash distribution to the partners should be made in accordance
with the:
a. partners' profit and loss sharing ratio.
b. balances of the partners' capital accounts.
c. ratio of the capital contributions by the partners.
d. ratio of capital contributions less withdrawals by the partners.
9. 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.
10. Under the Uniform Partnership Act
a. partnership creditors have first claim (Rank I) against the assets of an insolvent partnership.
b. personal creditors of an individual partner have first claim (Rank I) against the personal assets
of all partners.
c. partners with credit capital balances share (Rank I) the personal assets of an insolvent partner
that has a debit capital balance with personal creditors of that partner.
d. personal creditors of the partners of an insolvent partnership share partnership assets on a pro
rata basis (Rank I) with partnership creditors.
PROBLEMS. Show your solution in good form. (5 points each)

Problem 1
The partnership of Joe, Al, and Mike shares profits and losses 60%, 30%, and 10%, respectively. On
January 1, 2011, the partners voted to dissolve the partnership, at which time the assets, liabilities,
and capital balances were as follows:
Assets Liabilities and Capital
Cash 400,000 Accounts Payable 580,000
Other Assets 1,200,000 Joe, Capital 440,000
Al, Capital 380,000
Mike, Capital 200,000
Total assets 1,600,000 Total liabilities & Equity 1,600,000
All of the partners are personally insolvent.

Assume that all noncash assets are sold for $840,000 and all available cash is distributed in final
liquidation of the partnership. How much cash should be distributed to each partner?
a. Joe, $744,000; Al, $372,000; Mike, $124,000. c. Joe, $224,000; Al, $272,000; Mike, $164,000.
b. Joe, $440,000; Al, $380,000; Mike, $200,000. d. Joe, $396,000; Al, $198,000; Mike, $66,000.
Problem 2
The partnership of Pratt, Ellis, and Mack share profits and losses in the ratio of 4:4:2, respectively.
The partners voted to dissolve the partnership when its assets, liabilities, and capital were as
follows:
Assets Liabilities & Capital
Cash 250,000 Accounts payable 200,000
Other assets 1,000,000 Pratt, Capital 300,000
1,250,000 Ellis, Capital 350,000
Mack, Capital 400,000
1,250,000
The partnership will be liquidated over a prolonged period of time. As cash is available, it will be
distributed to the partners. The first sale of noncash assets having a book value of 600,000 realized
475,000. How much cash should be distributed to each partner after this sale?
a. Pratt, 90,000; Ellis, 140,000; Mack, 295,000 c. Pratt, 290,000; Ellis, 210,000; Mack, 105,000
b. Pratt, 210,000; Ellis, 290,000; Mack, 145,000 d. Pratt, 150,000; Ellis, 175,000; Mack, 200,000
Problem 3
The ABC partnership has the following capital accounts on its books at December 31, 2011:
Credit
A, Capital 400,000
B, Capital 240,000
C, Capital 80,000
All liabilities have been liquidated and the cash balance is zero. None of the partners have personal
assets in excess of his personal liabilities. The partners share profits and losses in the ratio of 3:2:5.
If the noncash assets are sold for $400,000, the partners should receive as a final payment:
a. A, 304,000; B, 176,000; C, 80,000 c. A, 304,000; B, 176,000; C, -0-
b. A, 256,000; B, 144,000; C, -0- d. A, 120,000; B, 80,000; C, 200,000
Problem 4
The partnership of Hill, Kiner, and Polk has been dissolved and is in the process of liquidation. On
July 1, 2011, just before the second cash distribution, the assets and equities of the partnership along
with residual profit sharing ratios were as follows:
Assets Liabilities and Equity
Cash 80,000 Liabilities 60,000
Receivables-net 20,000 Hill, Capital 50% 40,000
Inventories 60,000 Kiner, Capital 30% 70,000
Equipment-net 40,000 Polk, Capital 20% 30,000
Total assets 200,000 Total Lia & Equity 200,000
Assume that the available cash is distributed immediately, except for a $10,000 contingency fund
that is withheld pending complete liquidation of the partnership. How much cash should be paid to
each of the partners?
Hill Kiner Polk
a. 35,000 21,000 14,000
b. 5,000 3,000 4,000
c. 0 10,000 0
d. 0 6,000 4,000

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NAME:__________________________________ Program, Yr & Sec_

1. Which of the following statements is correct?

PROBLEMS. Show your solution in good form. (5 points each)

All of the partners are personally insolvent.

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