Essay on advanced accounting

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Solution to Chapter 16
E16‐1,2,4,11A, P16‐13 E16-1 Multiple-Choice Questions on Partnership Liquidations
1.

c

Joan
Profit ratio

40%

Charles
50%

Thomas
10%

Total
100%

Prior capital
Loss on sale of inventory
2.

a

(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 = .40/.50
Thomas = .10/.50

3.

d

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.

d

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.

a

The loan payable to Adam has the same legal status as the partnership’s other liabilities. After payment of the loan, then any available cash can be distributed to the partners using the safe payments computations.

6.

d

Partnership creditors have first claim to partnership assets

7.

a

After the settlement of accounts, partners are required to make additional contributions to the partnership to satisfy partnership obligations.

E16-2
1.

Multiple-Choice Questions on Partnership Liquidation
[AICPA Adapted]

a

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

2.

d

Edwards

3

2

(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

b

3.

5

Dithers

Art
Profit and loss ratio

40%

40%

20%

Capital balances

(37,000)

(65,000)

(48,000)

Loss absorption power
Loss to reduce C to B:
(77,500 x .20 = 15,500)
Balances
Loss to reduce B & C to A:
(B:70,000 x .40 = 28,000)
(C:70,000 x .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.

d

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

5.

a

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

6.

a

Arnie
Profit and loss ratio

Bart

40%

Capital balances
Loss of $100,000
Remaining equities

Kurt

30%

(40,000)
40,000
-0-

(180,000)
30,000
(150,000)

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

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

E16-4 Lump-Sum Liquidation
a.

BG Land Development Company
Statement of Partnership Realization and Liquidation
Lump-Sum Distribution

Capital Balances
Matthews
Mitchell
Michaels
50%
30%
20%

Cash
Balances
Sale of assets at a
$40,000 loss
Payment to creditors
(incl. Mitchell)
Payment to partners
Balances

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-…