Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Chapter 15, Problem 3P
To determine
Identify the correct option for what should happen if a partner’s capital account balance drops below zero during liquidation.
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1. During liquidation, a partners’ capital account balance drops below zero. What should happen?
a. The partner with a deficit should contribute enough assets to offset the deficit balance.
b. The other partners should file a legal suit against the partner with the deficit balance.
c. The partner with the highest capital balance should contribute sufficient assets to eliminate the deficit.
d. The deficit balance should be removed from the accounting records with only the remaining partners sharing in future gains and losses.
2. If the total debits in the statement of realization and liquidation exceeds the total credits, there is
a.none of these
b. net loss for the period
c. either net gain for the period
d.net gain for the period
3. In the liquidation of a partnership, a loan payable to a partner:
a. Must be closed to that partners’ drawing account.
b.Has the same priority as amounts payable to outside creditors of the partnership.
c.Will not advance the time of payment to that…
Choose the correct. During a liquidation, if a partner’s capital account balance drops below zero, what should happen?a. The other partners file a legal suit against the partner with the deficit balance.b. The partner with the highest capital balance contributes sufficient assets to eliminate the deficit.c. The deficit balance is removed from the accounting records with only the remaining partners sharing in future gains and losses.d. The partner with a deficit contributes enough assets to offset the deficit balance.
During a liquidation, if a partner’s capital account balance drops below zero, what Should Happen?
The other partners file a legal suit against the partner with the deficit balance.
The partner with the highest capital balance contributes sufficient assets to eliminate the deficit.
The deficit balance is removed from the accounting records with only the remaining partners sharing in future gains and losses.
The partner with a deficit contributes enough assets to offset the deficit balance.
Chapter 15 Solutions
Advanced Accounting
Ch. 15 - Prob. 1QCh. 15 - Prob. 2QCh. 15 - Prob. 3QCh. 15 - Prob. 4QCh. 15 - What is the purpose of a statement of liquidation?...Ch. 15 - Prob. 1PCh. 15 - Prob. 2PCh. 15 - Prob. 3PCh. 15 - Prob. 4PCh. 15 - A partnership is considering possible liquidation...
Ch. 15 - What is a predistribution plan? a. A list of the...Ch. 15 - Prob. 7PCh. 15 - Prob. 8PCh. 15 - Prob. 9PCh. 15 - Prob. 10PCh. 15 - Prob. 11PCh. 15 - Prob. 12PCh. 15 - Prob. 13PCh. 15 - Prob. 14PCh. 15 - Prob. 15PCh. 15 - Prob. 16PCh. 15 - Prob. 17PCh. 15 - Prob. 18PCh. 15 - Prob. 25PCh. 15 - Prob. 26PCh. 15 - March, April, and May have been in partnership for...Ch. 15 - Prob. 28PCh. 15 - Prob. 29P
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- 1. In a partnership liquidation the realization losses result in a debit balance in one partners’ capital account. If this partner fails to contribute personal assets to make up this deficit, how should the debit balance be handled by the partners? a. It should be written off against partnership profits like any other bad debt. b. It should be allocated to all the partners in their profit and loss ratio. c. It should be allocated to the remaining partners in their remaining P and L ratio. d. It should be set up as a receivable and turned over to a collection agency. 2. During liquidation, a partners’ capital account balance drops below zero. What should happen? a. The other partners should file a legal suit against the partner with the deficit balance. b. The partner with the highest capital balance should contribute sufficient assets to eliminate the deficit. c. The deficit balance…arrow_forwardDuring a liquidation, if a partner's capital account balance drops below zero, what should happen? Multiple Choice The partner with a deficit contributes enough assets to offset the deficit balance. The other partners file a legal suit against the partner with the deficit balance. The partner with the highest capital balance contributes sufficient assets to eliminate the deficit. The deficit balance is removed from the accounting records with only the remaining partners sharing in future gains and losses.arrow_forwardWhich of the following is false a regarding a partner's deficit balance? Multiple Choice A partner cannot refuse to make contributions to cover their deficit balance. Deficits can occur when the partnership has incurred significant operating losses. Deficits can occur when the sale of noncash assets during the liquidation process results in material losses. The partner with a deficit balance should contribute assets to cover the deficit balance. The other partners may have to absorb the deficit balance.arrow_forward
- Write TRUE if the statement is correct and FALSE if the statement is wrong. Write your answers on the space provided before the number. Erasures are strictly NOT allowed. 1. The loss absorption balances represent the maximum loss that the partners could absorb without reducing their equity below zero. 2. Gains and losses on the sale of assets in liquidation are divided equally among partners. 3. A partnership maybe dissolved without being liquidated but liquidation is always preceded by dissolution. 4. Under the installment method of partnership liquidation, realization of non-cash assets is accomplished over an extended period of time. When cash is available, creditors may be partially or fully paid. Any excess maybe distributed to the partners in accordance with a program of safe payments or a cash priority program. This process persists until all the non-cash assets are sold. 5. Restricted interest are provided for assumed non-sale of remaining non-cash assets and…arrow_forwardIn the liquidating process, any uncollectible deficiency becomes a loss to the partnership and is divided among the remaining partners' capital balances based on their income-sharing ratio. True /falsearrow_forwardIn the liquidation of a partnership, a loan payable to a partner: a) May be offset against that partners’ capital account balance before liquidation commences. b) Will not advance the time of payment to that partner during the liquidation. c) Has the same priority as amounts payable to outside creditors of the partnership. d) Must be closed to that partners’ drawing account.arrow_forward
- In the liquidation of a partnership, why might a partner be concerned that a fellow partner has a deficit net capital balance, and how might such a deficit be eliminated?arrow_forwardAn entry is not required in the liquidation of a partnership to recor the * payment of cash to creditors. O distribution of cash to the partners. sale of noncash assets. allocation of a capital deficiency to partners with credit balances when the deficient partner is expected to pay the deficiency.arrow_forwardIn a partnership liquidation, if a partner has a debit capital balance in his or her capital account, he or she is responsible for contributing personal assets sufficient to eliminate the deficit. Group of answer choices True Falsearrow_forward
- Which of the following is not correct with respect to an installment liquidation of a partnership? A.) All remaining liquidation expenses are anticipated. B.) All non-cash assets are assumed to be worthless. C.) Distributions to partners are always made according to their profit sharing percentages. D.) Partners with the greatest ability to absorb losses and expenses are the first to receive installment distributions.arrow_forwardTRUE OF FALSE: 1. Any partner who may develop a debit balance in his capital account may exercise the right of offset. 4. 8. Solvent partner is a deficient partner who is capable of paying his capital deficiency. 9. A partner who develops a debit balance after distribution of realization loss may contribute additional cash to the partnership. 5. 10. A partner who is declared insolvent, his capital deficiency will be absorbed by the remaining partners with credit balances based on profit and loss sharing ratio. 11. In partnership liquidation, partner's loan account and the obligation of the partnership to outsiders need to be separated although these are both liabilities. 12. There can be no liquidation unless the business has to be dissolved. 13. The statement of partnership liquidation is patterned after the fundamental accounting equation, A = L+ OE. 14. The journal entry needed in the right of offset is to debit the capital account of the deficient partner and credit to loan account…arrow_forwardWhat is the proper disposition of a partnership loan that was made from a partner who has a debit balance in the capital account? A. The loan is ignored in liquidation. B. The loan is offset against the debit balance in the capital account. 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 held for payment after all other capital accounts are covered.arrow_forward
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What is liquidity?; Author: The Finance Storyteller;https://www.youtube.com/watch?v=XtjS7CfUSsA;License: Standard Youtube License