Accounting in Action 1 - 1281

97. The partners’ capital statement includes each of the following except
a. partnership expenses.
b. additional investments.
c. drawings.
d. net income.

Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:

Business Economics

FOR INSTRUCTOR USE ONLY

1 - 1282 Accounting in Action

98. The balance sheet of a partnership will

a. report retained earnings below the partnership capital accounts.
b. show a separate capital account for each partner.
c. show a separate drawing account for each partner.
d. show the amount of income that was distributed to each partner.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:

Reporting

99. The liquidation of a partnership may result from each of the following except the
a. bankruptcy of the partnership.
b. death of a partner.
c. retirement of a partner.
d. sale of the business by the partners.

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:

Business Economics

100. In the liquidation of a partnership, any gain or loss on the realization of noncash assets
should be allocated
a. first to creditors and the remainder to partners.
b. to the partners on the basis of their capital balances.
c. to the partners on the basis of their income ratios.
d. only after all creditors have been paid.

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,

IMA: Business Economics

101. In the liquidation of a partnership, any partner who has a capital deficiency
a. has a personal debt to the partnership for the amount of the deficiency.
b. is automatically terminated as a partner.
c. will receive a cash distribution only on the basis of his or her
income-sharing ratio.
d. is not obligated to make up the capital deficiency.

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,

IMA: Business Economics

102. Partners Ana, Beth, and Cathy have capital account balances of $90,000 each. The
income and loss ratio is 5:2:3, respectively. In the process of liquidating the partnership,
noncash assets with a book value of $75,000 are sold for $30,000. The balance of Beth’s
Capital account after the sale is
a. $67,500.
b. $76,500.

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 Accounting in Action 1 - 1283

c. $81,000.
d. $99,000.

Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analysis, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:

Problem Solving, IMA: Reporting

Solution: $90,000  (.20) ($75,000  $30,000)  $81,000

FOR INSTRUCTOR USE ONLY

1 - 1284 Accounting in Action

103. The partners' income and loss sharing ratio is 2:3:5, respectively.

CHENARD, JENNINGS, AND BLAIR PARTNERSHIP

Balance Sheet
December 31, 2017

Assets Liabilities and Owners' Equity

Cash $ 45,000 Liabilities $150,000
Noncash assets 285,000 Chenard, Capital 60,000
Jennings, Capital 90,000
Blair, Capital 30,000
Total $330,000 Total $330,000

If the CHENARD, JENNINGS, and BLAIR Partnership is liquidated by selling the noncash
assets for $195,000 and creditors are paid in full, what is the amount of cash that can be
safely distributed to each partner?
a. CHENARD, $36,000; JENNINGS, $54,000; BLAIR, $0.
b. CHENARD, $42,000; JENNINGS, $63,000; BLAIR, $15,000.
c. CHENARD, $34,500; JENNINGS, $55,500; BLAIR, $0.
d. CHENARD, $33,000; JENNINGS, $57,000; BLAIR, $0.

Ans: A, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analysis, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:

Problem Solving, IMA: Business Economics

Solution: $60,000  (.2) ($195,000  $285,000)  (25) ($15,000)  $36,000; $90,000  (.3) ($195,000  $285,000)  (35) ($15,000)  $54,000;

$30,000 

(.5) ($195,000  $285,000)  $15,000  $0

104. The partners' income and loss sharing ratio is 2:3:5, respectively.

CHENARD, JENNINGS, AND BLAIR PARTNERSHIP

Balance Sheet
December 31, 2017

Assets Liabilities and Owners' Equity

Cash $ 45,000 Liabilities $150,000
Noncash assets 285,000 CHENARD, Capital 60,000
JENNINGS, Capital 90,000
BLAIR, Capital 30,000
Total $330,000 Total $330,000

If the CHENARD, JENNINGS, and BLAIR Partnership is liquidated by selling the noncash
assets for $375,000, and creditors are paid in full, what is the total amount of cash that
CHENARD will receive in the distribution of cash to partners?
a. $18,000

FOR INSTRUCTOR USE ONLY

 Accounting in Action 1 - 1285

b. $117,000
c. $78,000
d. $75,000

Ans: C, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analysis, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:

Problem Solving, IMA: Business Economics

Solution: $60,000  (.2) ($375,000  $285,000)  $78,000

FOR INSTRUCTOR USE ONLY

1 - 1286 Accounting in Action

105. The partners' income and loss sharing ratio is 2:3:5, respectively.

CHENARD, JENNINGS, AND BLAIR PARTNERSHIP

Balance Sheet
December 31, 2017

Assets Liabilities and Owners' Equity

Cash $ 45,000 Liabilities $150,000
Noncash assets 285,000 CHENARD, Capital 60,000
JENNINGS, Capital 90,000
BLAIR, Capital 30,000
Total $330,000 Total $330,000

If the CHENARD, JENNINGS, and BLAIR Partnership is liquidated and the noncash assets
are worthless, the creditors will look to what partner's personal assets for settlement of
the creditors' claims?
a. The personal assets of Partner JENNINGS.
b. The personal assets of Partners CHENARD and BLAIR.
c. The personal assets of Partners CHENARD, JENNINGS, and BLAIR.
d. The personal assets of the partners are not available for partnership debts.

Ans: C, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analysis, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:

Problem Solving, IMA: Business Economics

106. If a partner has a capital deficiency and does not have the personal resources to
eliminate it,
a. the creditors will have to absorb the capital deficiency.
b. the other partners will absorb the capital deficiency on the basis of their
respective capital balances.
c. the other partners will have to absorb the capital deficiency on the basis of
their respective income sharing ratios.
d. neither the creditors nor the other partners will have to absorb the capital
deficiency.

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,

IMA: Business Economics

107. When a partnership terminates business, the sale of noncash assets is called
a. liquidation.
b. realization.
c. recognition.
d. disposition.

Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:

Business Economics

FOR INSTRUCTOR USE ONLY

 Accounting in Action 1 - 1287

108. The liquidation of a partnership

a. cannot be a voluntary act of the partners.
b. terminates the business.
c. eliminates those partners with a capital deficiency.
d. cannot occur unless all partners approve.

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:

Business Economics

FOR INSTRUCTOR USE ONLY

1 - 1288 Accounting in Action

109. The liquidation of a partnership is a process containing the following steps:

1. Pay partnership liabilities in cash.

2. Allocate the gain or loss on realization to the partners on their income ratios.
3. Sell noncash assets for cash and recognize a gain or loss on realization.
4. Distribute remaining cash to partners on the basis of their remaining capital
balances.

Identify the proper sequencing of the steps in the liquidation process.

a. 3, 2, 4, 1.
b. 3, 2, 1, 4.
c. 1, 3, 2, 4.
d. 1, 4, 3, 2.

Ans: B, LO: 3, Bloom: K, Difficulty: Medium, Min: 2, AACSB: Analysis, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:

Problem Solving, IMA: Business Economics

110. In the final step of the liquidation process, remaining cash is distributed to partners
a. on an equal basis.
b. on the basis of the income ratios.
c. on the basis of the remaining capital balances.
d. regardless of capital deficiencies.

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:

Business Economics

111. In the liquidation process, if a capital account shows a deficiency

a. the partner with a deficiency has an obligation to the partnership for the
amount of the deficiency.
b. it may be written off to a "Loss" account.
c. it is disregarded until after the partnership books are closed.
d. it can be written off to a "Gain" account.

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,

IMA: Business Economics

112. Before distributing any remaining cash to partners in a partnership liquidation, it is

necessary to do each of the following except
a. sell noncash assets for cash.
b. recognize a gain or loss on realization.
c. allocate the gain or loss to the partners based on their capital balances.
d. pay partnership liabilities in cash.

Ans: C, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,

IMA: Business Economics

FOR INSTRUCTOR USE ONLY

 Accounting in Action 1 - 1289

113. Mandy, Annie, and Tammy formed a partnership with income-sharing ratios of 50%, 30%,
and 20%, respectively. Cash of $300,000 was available after the partnership’s assets were
liquidated. Prior to the final distribution of cash, Mandy’s capital balance was $200,000,
Annie’s capital balance was $150,000, and Tammy had a capital deficiency of $50,000.
Assuming Tammy contributes cash to match her capital deficiency, Mandy should receive
a. $175,000.
b. $168,750.
c. $131,250.
d. $200,000.

Ans: D, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analysis, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:

Problem Solving, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

1 - 1290 Accounting in Action

114. Alex, Bob, and Ciera are partners, sharing income 2:1:2. After selling all of the assets for
cash, dividing gains and losses on realization, and paying liabilities, the balances in the
capital accounts are as follows: Alex, $10,000 Cr; Bob, $10,000 Cr; and Ciera, $30,000 Cr.
How much cash should be distributed to Alex?
a. $6,000
b. $20,000
c. $10,000
d. $16,667

Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analysis, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:

Problem Solving, IMA: Business Economics

115. In liquidation, balances prior to the distribution of cash to the partners are: Cash
$900,000; Peterson, Capital $420,000; Laney, Capital $390,000, and Howell, Capital
$90,000. The income ratio is 6:2:2, respectively. How much cash should be distributed to
Peterson?
a. $375,000
b. $408,750
c. $420,000
d. $450,000

Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analysis, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:

Problem Solving, IMA: Business Economics

116. In liquidation, balances prior to the distribution of cash to the partners are: Cash
$765,000; Peterson, Capital $420,000; Laney, Capital $390,000, and Howell, Capital
$45,000 deficiency. The income ratio is 6:2:2, respectively. How much cash should be
distributed to Laney if Howell does not pay his deficiency?
a. $367,000
b. $378,750
c. $356,250
d. $390,000

Ans: B, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analysis, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:

Problem Solving, IMA: Business Economics

Solution: $390,000  (28) ($45,000)  $378,750

117. In liquidation, balances prior to the distribution of cash to the partners are: Cash
$240,000; Paley, Capital $112,000; Stengel, Capital $104,000, and King, Capital $24,000.
The income ratio is 6:2:2, respectively. How much cash should be distributed to Paley?
a. $100,000
b. $104,000
c. $112,000

FOR INSTRUCTOR USE ONLY