ch16 beams10e tb (1)

Chapter 16 Test Bank

DISSOLUTION AND LIQUIDATION OF A PARTNERSHIP

Multiple Choice Questions

LO11. Which statement is correct in describing the rank order of

payments as specified by the Uniform Partnership Act?

a. Payments to partners with loans to the partnership are ranked equally with payments to other creditors.

b. Payments to partners with loans to the partnership are ranked ahead of payments to partners without loans to the partnership.

c. Payments to other creditors are ranked ahead of payments to partners with loans to the partnership.

d. After payments are made to other creditors and partners with loans to the partnership, payment can be made to partners with capital interests.

LO12. Which of the following procedures is acceptable when accounting

for a deficit balance in a partner’s capital account during partnership liquidation?

a. A partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to zero.

b. If a partner with a negative capital balance is personally insolvent, the negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to all the partners.

c. If a partner with a negative capital balance is personally insolvent, the negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to those partners having positive balances.

d. All the above procedures are acceptable.

©2009 Pearson Education, Inc. publishing as Prentice Hall16-1

LO13. A partnership dissolution differs from a liquidation in that

a. payments are made to creditors before partners receive value.

b. periodic payments to partners are made when cash becomes available.

c. a partner withdraws from the business and the enterprise continues to function.

d. full payment is made to all outside creditors before remaining cash is distributed to partners in a final lump sum payment.

LO14. A partnership in liquidation has converted all assets into cash

and paid all liabilities. According to the Uniform Partnership Act, the order of payment

a. will have amounts due to partners with respect to their capital accounts take precedence over amounts owed by partners other than for capital and profits.

b. will be according to the partners’ residual profit and loss sharing ratios.

c. will have amounts owed by partners other than for capital and profits take precedence over amounts due to partners with respect to their capital accounts.

d. Will be by any manner that is both reasonable and rational for the partnership.

LO15. In partnership liquidation, how are partner salary allocations

treated?

a. Salary allocations take precedence over creditor payments.b. Salary allocations take precedence over amounts due to

partners with respect to their capital interests, but not profits.

c. Salary allocations take precedence over amounts due to partners with respect to their capital profits, but not capital interests.

d. Salary allocations are disregarded.

LO16. A simple partnership liquidation requires

a. periodic payments to creditors and partners determined by a safe payments schedule.

b. partnership assets to be converted into cash with full payment made to all outside creditors before remaining cash is distributed to partners in a lump sum payment.

c. only creditors to be paid in an orderly manner.©2009 Pearson Education, Inc. publishing as Prentice Hall

16-2

d. periodic payments to partners as cash becomes available.

LO27. In a simple partnership liquidation, the last remaining cash

distribution should be made according to the ratio of

a. the individual partner’s profit and loss agreement.b. the individual partner's capital accounts, increased by

partner loans to the partnership.c. the individual partner’s capital accounts, increased by

partnership loans to the partners and decreased by partner loans to the partnership.

d. the individual partner’s capital accounts, decreased by partnership loans to the partners and increased by partner loans to the partnership.

LO28. If conditions produce a debit balance in a partner’s capital

account when liquidation losses are allocated

a. the partner receives further allocations of liquidation losses, but not gains.

b. the partner receives no further allocation of liquidation losses and gains.

c. the partner is no longer obligated to partnership creditors.

d. the partner has an obligation of personal net assets to the other partners.

Use the following information for questions 9, 10 and 11.

On June 30, 2006, the Warle, Xin, and Yates partnership had the following fiscal year-end balance sheet:

Cash $ 4,000 Accounts payable $ 7,000Accounts receivable 6,000 Loan from Xin 5,000Inventory 14,000 Warle, capital(20%) 14,000Plant assets-net 12,000 Xin, capital(30%) 10,000Loan to Warle 6,000 Yates, capital(50%) 6,000Total assets $ 42,000 Total liab./equity $ 42,000

The percentages shown are the residual profit and loss sharing ratios. The partners dissolved the partnership on July 1, 2006,. and began the liquidation process. During July the following events occurred:

* Receivables of $3,000 were collected.* The inventory was sold for $4,000.* All available cash was distributed on


July 31, except for $2,000 that was set aside for contingent expenses.

LO29. The book value of the partnership equity (i.e., total equity of

the partners) on June 30, 2006 is

a. $60,000.b. $29,000.c. $30,000.d. $42,000.

LO210. The cash available for distribution to the partners on July 31,

2006 is

a. $ 2,000.b. $ 4,000.c. $ 7,000.d. $11,000.

LO211. How much cash would Xin receive from the cash that is available

for distribution on July 31?

a. $ 0.b. $ 600.c. $1,000.d. $2,000.

LO212. Hara, Ives, and Jack are in the process of liquidating their

partnership. Since it may take several months to convert the other assets into cash, the partners agree to distribute all available cash immediately, except for $10,000 that is set aside for contingent expenses. The balance sheet and residual profit and loss sharing percentages are as follows:

Cash $ 400,000 Accounts payable $ 200,000Other assets 200,000 Hara, capital (40%) 135,000

Ives, capital (30%) 216,000Jack, capital (30%) 49,000

Total assets $ 600,000 Total liab./equity $ 600,000

How much cash should Ives receive in the first distribution?

a. $146,000.b. $147,000.


c. $153,000.d. $156,000

LO213. Jade, Kahl, and Lane are in the process of liquidating their

partnership. Lane has agreed to accept the inventory, which has a fair value of $60,000, as part of her settlement. A balance sheet and the residual profit and loss sharing percentages are as follows:

Cash $ 198,000 Accounts payable $ 149,000Inventory 80,000 Jade, capital (40%) 79,000Plant assets 230,000 Kahl, capital (40%) 140,000

Lane, capital (20%) 140,000


If the partners then distribute the available cash, Lane will receive

a. $23,000.b. $29,000c. $30,000.d. $34,000.

LO214. Under the rule of offset, what is the proper disposition of a

partnership loan that was made from 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 cash to cover the debit balance.

c. The loan is charged off to the capital accounts of all the partners in their profit and loss sharing ratios.

d. The loan is charged off to the capital account of the debtor partner.


LO315. In partnership liquidations, what are safe payments?

a. The amounts of distributions that can be made to the partners, after all creditors have been paid in full.

b. The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership.

c. The amounts of distributions that can be made to the partners, after all non-cash assets have been adjusted to fair market value.

d. All the above are examples of the safe payments concept.

LO416. If all partners are included in the first installment of an

installment liquidation, then in future installments

a. cash will be distributed according to the residual profit and loss sharing ratio.

b. cash should not be distributed until all non-cash assets are converted into cash.

c. a safe payments schedule must be prepared before each cash distribution to avoid excessive payments to partners.

d. a cash distribution plan must be prepared so that partners will know when they will be included in cash distributions.

LO517. The year-end balance sheet and residual profit and loss sharing

percentages for the Lang, Maas, and Neal partnership on December 31, 2005, are as follows:

Cash $ 30,000 Accounts payable $ 200,000Loan to Lang 40,000 Loan from Maas 50,000Other assets 480,000 Lang, capital (25%) 70,000

Maas, capital (25%) 80,000Neal, capital (50%) 150,000


The partners agree to liquidate the business and distribute cash when it becomes available. A cash distribution plan for the Lang, Maas, and Neal partnership will show that cash available, after outside creditors are paid, will initially go to

a. Lang in the amount of $20,000.b. Maas in the amount of $45,000.


c. Maas in the amount of $55,000.d. Neal in the amount of $90,000.

LO518. In a schedule of assumed loss absorptions

a. the partner with lowest loss absorption is eliminated last.b. it is necessary to have a cash distribution plan first.c. the least vulnerable partner is eliminated first.d. the most vulnerable partner is eliminated first.

LO519. Which partner is considered the most vulnerable as a result of

a computation of vulnerability rankings?

a. The partner with the lowest vulnerability ranking, who also has the lowest loss absorption potential.

b. The partner with the lowest vulnerability ranking, who also has the highest loss absorption potential.

c. The partner with the highest vulnerability ratio, who also has the lowest loss absorption potential.

d. The partner with the highest vulnerability ranking, who also has the highest loss absorption potential.

LO620. The rank order is for claims against a bankrupt partner of

I. Those owing to partners by way of contributionII.Those owing to separate creditorsIII.Those owing to partnership creditors

a. II first; I second and III third.b. III first; II second and I third.c. I first; III second and II third.d. II first; III second and I third.


LO2Exercise 1

The balance sheet of the Alba, Blick, and Calvo partnership on January 1, 2006 (the date of partnership dissolution) was as follows:

Cash $ 2,000 Liabilities $ 4,010Other assets 13,000 Loan from Alba 500Loan to Calvo 1,000 Alba, capital (20%) 990

Blick, capital(40%) 4,500Calvo, capital(40%) 6,000


In January, other assets with a book value of $8,000 were sold for $5,000 in cash.

Required:

Determine how the available cash on January 31, 2006 will be distributed.

LO2Exercise 2

The partnership of Dale, Edgar, and Fred was dissolved, and by July 1, 2006, all assets had been converted into cash and all partnership liabilities were paid. The partnership balance sheet on July 1, 2006 (with partner residual profit and loss sharing percentages) was as follows:

Cash $ 10,000 Fred, capital(30%) $ 40,000Dale, capital(40%) (20,000)Edgar, capital(30%) (10,000)

Total assets $ 10,000 Total equity $ 10,000

The value of partners' personal assets and liabilities on July 1, 2006 were as follows:

Dale Edgar FredPersonal assets $ 45,000 $ 30,000 $ 25,000Personal liabilities 30,000 20,000 10,000

Required:

Prepare the final statement of partnership liquidation.


LO2Exercise 3

The balance sheet of the Omar, Paolo, and Quek partnership on November 1, 2006 (before commencement of partnership liquidation) was as follows:

Cash $ 58,000 Accounts payable $ 34,000Inventory 60,000 Notes payable 62,000Loan to Omar 8,000 Omar, capital(40%) 24,000Loan to Quek 14,000 Paolo, capital(25%) 26,000Plant assets-net 70,000 Quek, capital (35%) 64,000


Liquidation events in November were as follows: - The inventory was sold for $10,000 above book value;- Plant assets with a book value of $60,000 were sold for $34,000. Required:

Determine how the available cash on November 31, 2006 should be distributed.

LO2Exercise 4

A cash distribution plan for the Folger, Glover, and Hale partnership was as follows:

PriorityCreditors Folger Glover Hale

First $250,000 100%Next $100,000 70% 30%

Next $150,000 11/15 4/15Remainder 20% 35% 45%

Required:

If $850,000 of cash was distributed by the partnership, how much was received respectively by the priority creditors, Folger, Glover, and Hale?


LO2Exercise 5

The balance sheet of the Jody, Kane, and Lark partnership on May 1, 2006 (before commencement of partnership liquidation) was as follows:

Cash $ 54,000 Accounts payable $ 28,000Inventory 60,000 Notes payable 60,000Loan to Jody 10,000 Jody, capital (30%) 32,000Loan to Lark 16,000 Kane, capital (45%) 90,000Plant assets-net 110,000 Lark, capital (25%) 40,000


Liquidation events in May were as follows: - The inventory was sold for $6,000 below book value;- Plant assets with a book value of $50,000 were sold for $60,000. Required:

Determine how the available cash on April 30, 2006 should be distributed.

LO2Exercise 6

The balance sheet of the Nebe, Oak, and Pang partnership on October 1, 2006 (the date of partnership dissolution) was as follows:

Cash $ 3,000 Liabilities $ 9,000Other assets 33,000 Loan from Nebe 1,000Loan to Oak 4,000 Nebe, capital (20%) 3,000

Oak, capital (30%) 6,000Pang, capital (50%) 21,000


In October, other assets with a book value of $15,000 were sold for $17,000 in cash.

Required:

Determine how the available cash on October 31, 2006 will be distributed.


LO2Exercise 7

The partnership of Hanly, Ide, and Jen was dissolved. By August 1, 2006, all assets had been converted into cash and all partnership liabilities were paid. The partnership balance sheet on August 1, 2006 (with partner residual profit and loss sharing percentages) was as follows:

Cash $ 50,000 Hanly, capital(30%) $ 4,000Ide, capital(20%) (60,000)Jen, capital(50%) 106,000

Total assets $ 50,000 Total equity $ 50,000

The value of partners' personal assets and liabilities on August 1, 2006 were as follows:

Hanly Ide JenPersonal assets $ 74,000 $ 120,000 $ 56,000Personal liabilities 72,000 80,000 60,000

Required:

Prepare the final statement of partnership liquidation.


LO5Exercise 8

Luis, Mac, Nel, and Oma are partners who share profits and losses 40%, 25%, 25%, and 10%, respectively. The partnership will be liquidated gradually over several months beginning January 1, 2006. The partnership trial balance at December 31, 2005 is as follows:

Debits CreditsCash $ 3,000Accounts receivable 19,000Inventory 25,000Loan to Nel 5,000Furniture 15,000Equipment 10,000Goodwill 12,000Accounts payable $ 14,000Note payable 30,000Loan from Luis 5,000Luis, capital (40%) 15,000Mac, capital (25%) 9,000Nel, capital (25%) 12,000Oma, capital (10%) 4,000Totals $ 89,000 $ 89,000

Required:

Prepare a cash distribution plan for January 1, 2006, showing how cash installments will be distributed among the partners as it becomes available.


LO5Exercise 9

Quan, Ray, Sen, and Tad are partners who share profits and losses 30%, 20%, 35%, and 15%, respectively. The partnership will be liquidated gradually over several months beginning January 1, 2006. The partnership trial balance at December 31, 2005 is as follows:

Debits CreditsCash $ 3,000Accounts receivable 10,000Inventory 25,000Loan to Ray 4,000Furniture 15,000Equipment 18,000Goodwill 10,000Accounts payable $ 12,000Note payable 30,000Loan from Sen 6,000Quan, capital (30%) 12,000Ray, capital (20%) 9,000Sen, capital (35%) 12,000Tad, capital (15%) 4,000Totals $ 85,000 $ 85,000

Required:

Prepare a cash distribution plan for January 1, 2006, showing how cash installments will be distributed among the partners as it becomes available.

LO5Exercise 10

A cash distribution plan for the Upton, Valenta, and Walker partnership was as follows:

PriorityCreditors Upton Valenta Walker

First $100,000 100%Next $180,000 44% 10% 46%Next $270,000 2/9 1/9 2/3Remainder 11% 44% 45%

Required:

If $700,000 of cash was distributed by the partnership, how much was received respectively by the priority creditors, Upton, Valenta, and Walker?


SOLUTIONS

Multiple Choice Questions

1. c

2. c

3. a

4. c

5. d

6. b

7. a

8. d

9. b ($14,000 Warle capital + $10,000 Xin capital + $6,000 Yates capital + $5,000 Loan from Xin - $6,000 Loan to Warle)

10. a ($4,000 beginning balance + $3,000 cash collected + $4,000 for inventory sold - $7,000 of accounts payable - $2,000 for expenses)

11. d

Warle Xin Yates TotalEquities,Jun 30 $ 8,000 $ 15,000 $ 6,000 $ 29,000Inventory loss ( 2,000 ) ( 3,000 ) ( 5,000 ) ( 10,000 )Contingency fund ( 400 ) ( 600 ) ( 1,000 ) ( 2,000 )Subtotals 5,600 11,400 0 17,000

Possible losses on remaining assets ( 3,000 ) ( 4,500 ) ( 7,500 ) ( 15,000 )Subtotals $ 2,600 $ 6,900 $( 7,500 ) $ 2,000

Eliminate Yates’s Deficit ( 3,000 ) ( 4,500 ) 7,500Subtotals ( 400 ) 2,400 0 2,000

Eliminate Warle’s Deficit 400 ( 400 )Cash distribution $ 0 $ 2,000 $ 0 $ 2,000


12. b

Losses 40%Hara

30%Ives

30%Jack

Equities $ 135,000 $ 216,000 $ 49,000Possible loss on remaining assets $ 200,000 ( 80,000 ) ( 60,000 ) ( 60,000 )Contingencies 10,000 ( 4,000 ) ( 3,000 ) ( 3,000 )Subtotals $ 51,000 $ 153,000 $( 14,000 )

Eliminate Jack’s debit balance ( 8,000 ) ( 6,000 ) 14,000

Safe payments $ 43,000 $ 147,000 $ 0

13. a

40%Jade

40%Kahl

20%Lane

Equities $ 79,000 $ 140,000 $ 140,000Distribute inventory to Lane and:

( 60,000 )

recognize $20,000 loss ( 8,000 ) ( 8,000 ) ( 4,000 )Possible losses on plant ( 92,000 ) ( 92,000 ) ( 46,000 )Subtotal $( 21,000 ) $ 40,000 $ 30,000Eliminate Jade’s debit balance to Kahl & Lane 21,000 ( 14,000 ) ( 7,000 )Balance $ 0 $ 26,000 $ 23,000

14. b

15. b

16. a


17. c

Vulnerability ranks: Lang equity ($70,000 - $40,000)/.25 = $120,000 = 1 Maas equity ($80,000 + $50,0000/.25 = $520,000 = 3 Neal equity ($150,000/.5) = $300,000 = 2

Assumed loss absorption: 25%Lang

25%Maas

50%Neal Total

Equities $ 30,000 $ 130,000 $ 150,000 $ 310,000Loss to eliminate Lang ( 30,000 ) ( 30,000 ) ( 60,000 ) ( 120,000 )Subtotals 0 $ 100,000 $ 90,000 $ 190,000

Loss to eliminate Neal ( 45,000 ) ( 90,000 ) ( 135,000 )Subtotals $ 55,000 $ 0 $ 55,000

18. d

19. a

20. d


Exercise 1

Alba, Blick, and Calvo PartnershipPartnership Liquidation Schedule

CashNon-CashAssets

FirstRankDebt

20%Alba

Equity

40%BlickEquity

40%CalvoEquity

Jan 1 Balance $ 2,000 $ 13,000 $ 4,010 $ 1,490 $ 4,500 $ 5,000Sale of assets 5,000 ( 8,000) ( 600) ( 1,200) ( 1,200)Subtotal $ 7,000 $ 5,000 $ 4,010 $ 890 $ 3,300 $ 3,800

Safe Payments Schedule

AlbaEquity

BlickEquity

CalvoEquity

Partners’ pre-distribution balances $ 890 $ 3,300 $ 3,800Possible losses on non-cash assets ( 1,000)( 2,000)( 2,000)

( 110) 1,300 1,800Write off Alba 50-50 110 ( 55)( 55)Cash distribution to partners $ 0 $ 1,245 $ 1,745

Cash distribution plan on January 31:

First $4,010 goes to priority creditors, and then Blick receives $1,245 and Calvo receives $1,745.


Exercise 2

Dale, Edgar, and Fred PartnershipFinal Statement of Partnership Liquidation

CashDale

CapitalEdgar

CapitalFred

Capital TotalBalance, July 1 $ 10,000 $( 20,000)$( 10,000) $ 40,000 $ 10,000Dale’s personal contribution 15,000 15,000 15,000

25,000 ( 5,000) ( 10,000) 40,000 25,000Write-off Dale 5,000 ( 2,500) ( 2,500)

25,000 $ 0 ( 12,500) 37,500 25,000Edgar’s personal contribution 10,000 10,000 10,000

35,000 ( 2,500) 37,500 35,000Write-off Edgar 2,500 ( 2,500)

35,000 $ 0 35,000 35,000

Distribute cash ( 35,000) ( 35,000) ( 35,000)$ 0 $ 0 $ 0

Exercise 3

Omar, Paolo, and QuekSchedule of Partnership Liquidation

November 30, 2006

Assets Debts40%Omar

25%Paolo

35%Quek

Balance, Nov. 1 $ 210,000 $ 96,000 $ 24,000 $ 26,000 $ 64,000Inventory sold 10,000 4,000 2,500 3,500Sale of plant ( 26,000) ( 10,400) ( 6,500) ( 9,100)Balances beforedistribution 194,000 96,000 17,600 22,000 58,400Offset loans ( 22,000) ( 8,000) ( 14,000)Pay creditors ( 96,000) ( 96,000)Partner equity $ 76,000 $ 9,600 $ 22,000 $ 44,400Possible loss: Plant assets ( 10,000) ( 4,000 ) ( 2,500 ) ( 3,500)Distribution $ 66,000 $ 5,600 $ 19,500 $ 40,900

(Cash Distribution: $58,000 + $70,000 + $34,000 - $96,000 = $66,000) Nov. 1 Inventory Plant Creditors Nov. 30


Exercise 4

PriorityCreditors Folger Glover Hale

First $250,000 $ 250,000Next $100,000 $ 70,000 $ 30,000Next $150,000 110,000 $ 40,000Last $350,000 70,000 122,500 157,500Total $850,000 $ 250,000 $ 250,000 $ 152,500 $ 197,500

Exercise 5

Jody, Kane, and LarkSchedule of Partnership Liquidation

May 30, 2006

Assets Debts30%Jody

45%Kane

25%Lark

Balance, May 1 $ 250,000 $ 88,000 $ 32,000 $ 90,000 $ 40,000Plant sold 10,000 3,000 4,500 2,500Inventory sold ( 6,000) ( 1,800) ( 2,700) ( 1,500)Balances beforedistribution 254,000 88,000 33,200 91,800 41,000Offset loans ( 26,000) ( 10,000) ( 16,000)Pay creditors ( 88,000)( 88,000)Partner equity $ 140,000 $ 23,200 $ 91,800 $ 25,000Possible loss: Plant assets ( 60,000) ( 18,000) ( 27,000) ( 15,000)Distribution $ 80,000 $ 5,200 $ 64,800 $ 10,000

(Cash Distribution: $54,000 + $54,000 + $60,000 - $88,000 = $80,000) May 1 Inventory Plant Creditors May 30


Exercise 6

Nebe, Oak, and Pang PartnershipPartnership Liquidation Schedule

CashNon-Cash

Assets

FirstRankDebt

30%Oak

Equity

20%Nebe

Equity

50%Pang

EquityJan 1 Balance $ 3,000 $ 33,000 $ 9,000 $ 2,000 $ 4,000 $ 21,000Sale of assets 17,000 ( 15,000) 600 400 1,000Subtotal 20,000 18,000 9,000 2,600 4,400 22,000

Safe Payments Schedule

OakEquity

NebeEquity

PangEquity

Partners’ pre-distribution balances $ 2,600 $ 4,400 22,000Possible losses on non-cash assets ( 5,400)( 3,600)( 9,000)

( 2,800) 800 13,000Write off Oak 2/7 and 5/7 2,800 ( 800)( 2,000)Cash distribution to partners $ 0 $ 0 $ 11,000

Cash distribution plan on October 31:

First $9,000 goes to priority creditors, and then Pang receives $11,000.


Exercise 7

Hanly, Ide, and Jen PartnershipFinal Statement of Partnership Liquidation

CashIde

CapitalHanly

CapitalJen

Capital TotalBalance, Aug. 1 $ 50,000 $( 60,000) $ 4,000 $ 106,000 $ 50,000Ide’s personal contribution 40,000 40,000 40,000

90,000 ( 20,000) 4,000 106,000 90,000Write-off Ide 20,000 ( 7,500)( 12,500)

90,000 $ 0 $( 3,500) 93,500 90,000Hanly’s personal contribution 2,000 2,000 2,000

92,000 ( 1,500) 93,500 92,000Write-off Hanly 1,500 ( 1,500)

92,000 $ 0 92,000 92,000

Distribute cash ( 92,000) ( 92,000) ( 92,000)$ 0 $ 0 $ 0


Exercise 8

Loss absorption potential:

Partners’Equity

Profitand LossRatio

LossAbsorptionPotential

VulnerabilityRanking

Luis $ 20,000 40% $ 50,000 4Mac 9,000 25% $ 36,000 2Nel 7,000 25% $ 28,000 1Oma 4,000 10% $ 40,000 3

Schedule of assumed loss absorption:

40%Luis

25%Mac

25%Nel

10%Oma Total

Partnership equity $ 20,000 $ 9,000 $ 7,000 $ 4,000 $ 40,000Assumed lossto absorb Nel ( 11,200 ) ( 7,000 ) ( 7,000 ) ( 2,800 ) ( 28,000 )

8,800 2,000 0 1,200 12,000Assumed lossto absorb Mac ( 3,200 ) ( 2,000 ) ( 800 ) ( 6,000 )

5,600 0 400 6,000Assumed lossto absorb Oma ( 1,600 ) ( 400 ) ( 2,000 )

$ 4,000 $ 0 $ 4,000

Cash distribution plan:

First $44,000 pays the priority creditors;Next $4,000 goes to Luis;Next $2,000 goes $1,600 to Luis, and $400 to Oma;Next $6,000 goes $3,200 to Luis, $2,000 to Mac, and $800 to Oma;Remainder goes 40% to Luis, 25% to Mac, 25% to Nel, and 10% to Oma.


Exercise 9

Loss absorption potential:

Partners’Equity

Profitand LossRatio

LossAbsorptionPotential

VulnerabilityRanking

Quan $ 12,000 30% $ 40,000 3Ray 5,000 20% $ 25,000 1Sen 18,000 35% $ 51,429 4Tad 4,000 15% $ 26,667 2

Schedule of assumed loss absorption:

30%Quan

15%Tad

20%Ray

35% Sen Total

Partnership equity $ 12,000 $ 4,000 $ 5,000 $ 18,000 $ 39,000Assumed loss- absorb Ray ( 7,500 ) ( 3,750 ) ( 5,000 ) ( 8,750 ) ( 25,000 )

4,500 250 $ 0 9,250 14,000Assumed loss to absorb Tad ( 500 ) ( 250 ) ( 583 ) ( 1,333 )

4,000 $ 0 8,667 12,667Assumed lossto absorb Quan ( 4,000 ) ( 4,667 ) ( 8,667 )

$ 0 $ 4,000 $ 4,000

Cash distribution plan:

First $42,000 pays the priority creditors;Next $4,000 goes to Sen;Next $8,667 goes $4,667 to Sen, and $4,000 to Quan;Next $1,333 goes $583 to Sen, $500 to Quan, and $250 to Tad;Remainder goes 35% to Sen, 30% to Quan, 20% to Ray, and 15% to Tad.

Exercise 10

PriorityCreditors Upton Valenta Walker

First $100,000 $ 100,000Next $180,000 $ 79,200 $ 18,000 $ 82,800Next $270,000 60,000 30,000 180,000Last $150,000 16,500 66,000 67,500Total $700,000 $ 100,000 $ 155,700 $ 114,000 $ 330,300


ch16 beams10e tb (1)

Documents

partners capital account

capital profits

negative capital balance

capital interests

capital accounts

partners residual profit

positive capital balance

partnership dissolution