Finals: Chapter 5 Flashcards
(21 cards)
Lump sum liquidation method requires that all assets are converted into cash, all liabilities are paid, and all profits and losses are charged to the partners, followed by a single distribution of cash.
True or False
True
The process of removing the debit balance of a partner through his existing loan account is called exercising the right of off set.
True or False
True
Dissolution always results to liquidation.
True or False
False
In liquidation, cash should be distributed first to outside creditors.
True or False
True
Gain or loss on realization is divided among the partners according to their capital contributions.
True or False
False
The loss absorption potential is the maximum loss each partner can absorb and which can eliminate him from any cash distribution.
True or False
True
In the partnership liquidation statement, assets are generally classified as cash and non-cash assets.
True or False
True
Loss on realization and liquidation expense are allocated based on the profit and loss ratio and will decrease the partners capital accounts.
True or False
True
Under lump sum liquidation, the final cash distribution is made on the basis of the partners’ profit and loss sharing agreement.
False
Payment of liabilities would not affect the capital balances of the partners.
True
This refers to the process of converting the non-cash assets of the partnership and distributing the total cash to the creditors and the remainder, if any, to the partners.
- Liquidation
- Termination
- Dissolution
- Operation
Liquidation
Which of the following statements is correct regarding partner’s capital deficiency?
- All of these statements are correct.
- If contributions are not possible, the other partners with credit capital balances will be allocated a portion of the debit balance.
All of these statements are correct.
The final cash distribution to partners in the event of lump sum partnership liquidation is in accordance with…
- none of the choices
- capital contributions
- partners profit and loss ratio
- ending capital balances
Ending capital balances
If a partner is solvent but has capital deficiency, his personal cash/fund shall be applied…
- to partnership and partner’s own creditors proportionately
- to deficient partner’s own creditors
- to partnership creditors
- to partnership to remove capital deficiency
To partnership to remove capital deficiency.
What is the procedure carried out in a situation where the partnership owes a partner his loan balance while the partner owes the partnership the amount of his capital deficiency?
- Absorption of loss
- Liquidation
- Right of offset
- Dissolution
Right of offset
The process of converting non-cash assets into cash:
- Encashment
- Conversion
- Liquidation
- Realization
Realization
A partner whose personal liabilities exceed his personal assets:
- Bankrupt partner
- Deficient partner
- Insolvent partner
- Nominal partner
Insolvent partner
A simple partnership liquidation requires…
- 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.
- periodic payments to creditors and partners as cash becomes available.
- only creditors to be paid in an orderly manner.
- periodic payments to partners as cash becomes available.
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.
If conditions produce a debit balance in a partner’s capital account when liquidation losses are allocated
- solvent partner has the obligation to contribute to the partnership additional cash equivalent to his debit capital balance.
- the partner receives further allocations of liquidation losses, but not gains.
- the partner is no longer obligated to partnership creditors.
- the partner receives no further allocation of liquidation losses and gains.
Solvent partner has the obligation to contribute to the partnership additional cash equivalent to his debit capital balance.
Gains or losses from assets sold during liquidation of a partnership are
- not recorded.
- divided equally among partners.
- divided according to partners’ profit and loss ratio.
- divided according to partner’s ending capital balances.
Divided according to partners’ profit and loss ratio.
Realization of Non-Cash Assets
Randy, Sandy and Tammy decided to liquidate the partnership on November 30, 2023. Their capital balances and profit ratio as of date are shown below:
Randy’s Capital and Ratio: 50,000; 40%
Sandy’s Capital and Ratio: 60,000; 30%
Tammy’s Capital and Ratio: 20,000; 30%
The net income for 2023 is P44,000. Cash and liabilities amounted to P40,000 and P90,000, respectively.
For Randy to receive P55,200 in full settlement of his interest in the firm, how much must be realized from the sale of non-cash assets?
193,000
