Partnership Termination and Liquidation

File: Chapter 15 Partnerships: Termination and Liquidation Multiple Choice [QUESTION] 1. What is a marshaling of assets?A) a listing of estimated realizable values of a business's assets B) the order in which the creditors of a partnership will be paid as partnership assets are liquidated C) the order in which partners receive cash as partnership assets are liquidated D) a ranking of claims against an individual E) the order in which the partnership's assets are liquidated Answer: D Difficulty: Easy [QUESTION] 2. The partnership of Nurr, Cleamons, and Kelly was insolvent, as was Cleamons personally. The partnership had begun liquidating its assets and Cleamons' capital account had a debit balance. How would the claim of Nurr and Kelly against Cleamons be ranked in comparison with the claims of Cleamons' other creditors? A) It ranks lower in priority than Cleamons' personal creditors and the creditors of the partnership. B) It ranks equal in priority with the claims of Cleamons' personal creditors. C) It ranks lower in priority than Cleamons' personal creditors but higher in priority than the creditors of the partnership. D) It ranks higher in priority than Cleamons' personal creditors and the creditors of the partnership. E) It ranks higher in priority than Cleamons' personal creditors but lower in priority than the creditors of the partnership. Answer: A Difficulty: Easy [QUESTION] 3. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet: C N a s h o n c a s h T o t a l $ 1 6 , 0 L 0 i 0a b i a s 4 s 3 e 4t s , 0 0 A 0 b r a B a r t l C r e i g $ 4 5 0 , 0 0 T0 o t l i t i e s m s , c a e , c a p h t o n , a l $ 1 5 p i 8 t a0 l , i t a 9l 0 , c a1 p 3 i 0 t $ 4 5 0 , 0 0 0 0 0 0 0 0 a, 0 l 0 0 0 , 0 0 0 0 Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000. If the noncash assets were sold for $234,000, what amount of the loss would have been allocated to Bartle? A) $43,200. B) $46,800. C) $40,000. D) $42,400. E) $43,100. Answer: C Difficulty: Easy [QUESTION] 4. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet: C N a s h o n c a s h T o t a l 1 6 , 0 L 0 i 0a b i a s 4 s 3 e 4t s , 0 0 A 0 b r a B a r t l C r e i g $ 4 5 0 , 0 0 T0 o t $ l i t i e s m s , c a e , c a p h t o n , a l $ 1 5 p i 8 t a0 l , i t a 9l 0 , c a1 p 3 i 0 t $ 4 5 0 , 0 0 0 0 0 0 0 0 0 a, 0 l 0 0 0 , 0 0 0 Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000. The noncash assets were sold for $134,000. Which partner(s) would have had to contribute assets to the partnership to cover a deficit in his or her capital account? A) Abrams. B) Bartle. C) Creighton. D) Abrams and Creighton. E) Abrams and Bartle. Answer: D Difficulty: Medium [QUESTION] 5. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet: C N a s h o n c a s h T o t a l 1 6 , 0 L 0 i 0a b i a s 4 s 3 e 4t s , 0 0 A 0 b r a B a r t l C r e i g $ 4 5 0 , 0 0 T0 o t $ l i t i e s m s , c a e , c a p h t o n , a l $ 1 5 p i 8 t a0 l , i t a 9l 0 , c a1 p 3 i 0 t $ 4 5 0 , 0 0 0 0 0 0 0 0 0 a, 0 l 0 0 0 , 0 0 0 Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000. After the liquidation expenses of $12,000 had been paid and the noncash assets sold, Creighton had a deficit of $8,000. For what amount were the noncash assets sold? A) $170,000. B) $264,000. C) $158,000. D) $146,000. E) $185,000. Answer: A Difficulty: Hard [QUESTION] 6. The Keaton, Lewis, and Meador partnership had the following balance sheet just before entering liquidation: C N a s h o n c a s h T o t a l , 0L 0 a s 3 s 0e 0t s , 0 0 K 0 L M $ 3 1 0 , 0 0 $ 1 0 i 0a b e a e w e a T0 o i l i t i e s $ 1 3 0 , t o n , c a p i t 6 a 0l , 0 0 i s , c a p i t a 4l 0 , 0 0 d o r , c a p i 8t a 0 l , 0 0 t a l $ 3 1 0 , 0 0 0 0 0 0 0 0 0 Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were sold for $180,000. Liquidation expenses were $10,000. Assume that Lewis was personally insolvent and could not contribute any assets to the partnership, while Keaton and Meador were both solvent. What amount of cash would Keaton have received from the distribution of partnership assets? A) $38,000. B) $30,000. C) $24,000. D) $34,000. E) $31,600. Answer: B Difficulty: Hard [QUESTION] 7. The Keaton, Lewis, and Meador partnership had the following balance sheet just before entering liquidation: C N a s h o n c a s h T o t a l , 0L 0 a s 3 s 0e 0t s , 0 0 K 0 L M $ 3 1 0 , 0 0 $ 1 0 i 0a b e a e w e a T0 o i l i t i e s $ 1 3 0 , t o n , c a p i t 6 a 0l , 0 0 i s , c a p i t a 4l 0 , 0 0 d o r , c a p i 8t a 0 l , 0 0 t a l $ 3 1 0 , 0 0 0 0 0 0 0 0 0 Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were sold for $180,000. Liquidation expenses were $10,000. Assume that Keaton was personally insolvent with assets of $8,000 and liabilities of $60,000. Lewis and Meador were both solvent and able to cover deficits in their capital accounts, if any. What amount of cash could Keaton's personal creditors have expected to receive from partnership assets? A) $30,000. B) $0. C) $52,000 D) $26,000 E) $34,000 Answer: E Difficulty: Medium [QUESTION] 8. The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following account balances: C N a s h o n c a s h T o t a l $ 9 0 , 0L a s 3 s 0 e 0t s , 0 0 H I J $ 3 9 0 , 0 0 0 i 0a e s a a c 0 T0 b i n r a c o b o t l i t i e s y , c a p i , c a p i t s , c a p a l $ t a 8l 0 a l1 1 i t 1 a 4l $ 3 0 , 0 , 0 0 0 0 , 0 0 0 , 0 0 9 0 , 0 6 0 0 0 0 0 0 Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and losses in a ratio of 2:4:4. What amount of cash was available for safe payments, based on the above information? A) $30,000. B) $85,000. C) $25,000. D) $35,000. E) $40,000. Answer: C Difficulty: Easy [QUESTION] 9. The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following account balances: C N a s h o n c a s h T o t a l 9 0 , 0L a s 3 s 0 e 0t s , 0 0 H I J $ 3 9 0 , 0 $ 0 i 0a 0 e s a a c 0 T0 b n a o o i l r y c , b t a i t i e s , c a p i c a p i t s , c a p l $ t a 8l 0 a l1 1 i t 1 a 4l $ 3 6 0 , 0 0 0 , 0 0 0 0 , 0 0 0 0 , 0 0 0 9 0 , 0 0 0 Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and losses in a ratio of 2:4:4. Before liquidating any assets, the partners determined the amount of cash available for safe payments. How should the cash be distributed? A) in a ratio of 1:2:2 among the partners. B) $18,333 to Henry and $16,667 to Jacobs. C) in a ratio of 1:2 between Henry and Jacobs. D) $15,000 to Henry and $10,000 to Jacobs. E) $11,364 to Henry and $13,636 to Jacobs. Answer: D Difficulty: Hard [QUESTION] 10. The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following account balances: C N a s h o n c a s h T o t a l 9 0 , 0L a s 3 s 0 e 0t s , 0 0 H I J $ 3 9 0 , 0 $ 0 i 0a 0 e s a a c 0 T0 b n a o o i l r y c , b t a i t i e s , c a p i c a p i t s , c a p l $ t a 8l 0 a l1 1 i t 1 a 4l $ 3 6 0 , 0 0 0 , 0 0 0 0 , 0 0 0 0 , 0 0 0 9 0 , 0 0 0 Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and losses in a ratio of 2:4:4. Before liquidating any assets, the partners determined the amount of cash for safe payments and distributed it. The noncash assets were then sold for $120,000, and the liquidation expenses of $5,000 were paid. How much of the $120,000 would be distributed to Henry? A) $23,000. B) $24,000. C) $40.000. D) $27,000. E) $28,000. Answer: E Difficulty: Hard [QUESTION] 11. The following account balances were available for the Perry, Quincy, and Renquist partnership just before it entered liquidation: C N a s h o n c a s h T o t a l $ 9 0 , 0L 0 a s 3s e0 t 0 s , 0 0 P 0 Q R $ 3 9 0 , 0 0 i 0a b i l i t i e s $ 1 7 0 , 0 0 e r r y , c a p i t a l 7 0 , 0 0 0 u i n c y , c a p i t 5a 0l , 0 0 0 e n q u i s t , c a p1 i 0 t a0 l , 0 0 0 T0 o t a l $ 3 9 0 , 0 0 0 0 Perry, Quincy, and Renquist had shared profits and losses in a ratio of 2:4:4. Liquidation expenses were expected to be $8,000. All partners were solvent. What would be the minimum amount for which the noncash assets must have been sold for, in order for Quincy to receive some cash from the liquidation? A) any amount in excess of $175,000. B) any amount in excess of $117,000. C) any amount in excess of $183,000. D) any amount in excess of $198,667. E) any amount in excess of $168,333. Answer: C Difficulty: Hard [QUESTION] 12. . The following account balances were available for the Perry, Quincy, and Renquist partnership just before it entered liquidation: C N a s h o n c a s h T o t a l $ 9 0 , 0L 0 a s 3s e0 t 0 s , 0 0 P 0 Q R $ 3 9 0 , 0 0 i 0a b i l i t i e s $ 1 7 0 , 0 0 e r r y , c a p i t a l 7 0 , 0 0 0 u i n c y , c a p i t 5a 0l , 0 0 0 e n q u i s t , c a p1 i 0 t a0 l , 0 0 0 T0 o t a l $ 3 9 0 , 0 0 0 0 Perry, Quincy, and Renquist had shared profits and losses in a ratio of 2:4:4. Liquidation expenses were expected to be $8,000. Assume that Quincy was insolvent and could not contribute assets to cover any deficit in her capital account. For what amount must the noncash assets have been sold, so that Renquist would have received some cash from the liquidation? A) any amount in excess of $108,000. B) any amount in excess of $58,000. C) any amount in excess of $201,600. D) any amount in excess of $50,000. E) any amount in excess of $104,000. Answer: A Difficulty: Hard [QUESTION] 13. A local partnership was in the process of liquidating and reported the following capital balances: J u s t i c e , c a p i t a l ( 4 0 % s $ h a r 2 e 3 o, 0f 0 a 0 l l p Z o b a r t , c a p i t a l ( 3 5 % ) 2 2 , 0 0 0 D o u g l a s s , c a p i t a l ( 2 5 % ) ( 1 4 , 0 0 0 ) Douglass indicated that the $14,000 deficit would be covered by a forthcoming contribution. However, the two remaining partners asked to receive the $31,000 that was then available. How much of this money should Justice receive? A) $15,000. B) $15,467. C) $17,333. D) $16,533. E) $15,867. Answer: D r o f i t s a n d Difficulty: Medium [QUESTION] 14. . A local partnership was in the process of liquidating and reported the following capital balances: J u s t i c e , c a p i t a l ( 4 0 % s $ h a r 2 e 3 o, 0f 0 a 0 l l p Z o b a r t , c a p i t a l ( 3 5 % ) 2 2 , 0 0 0 D o u g l a s s , c a p i t a l ( 2 5 % ) ( 1 4 , 0 0 0 ) Douglass indicated that the $14,000 deficit would be covered by a forthcoming contribution. However, the two remaining partners asked to receive the $31,000 that was then available. How much of this money should Zobart receive? A) $15,000. B) $14,467. C) $17,333. D) $15,633. E) $15,867. Answer: B Difficulty: Easy [QUESTION] 15. A local partnership was considering the possibility of liquidation since one of the partners (Ding) was insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. r o f i t s a n d D L E T i n a u z z i l l g , c a p $i t r e l , c a p 6 a r d , c a p1 m a n , c a a 6l 0 , 0 0 0 i 7t a , 0l 0 0 i 7 t a, 0 l 0 0 p 9 i 6 t a , 0l 0 0 Ding's creditors filed a $25,000 claim against the partnership's assets. At that time, the partnership held assets reported at $360,000 and liabilities of $120,000. If the assets could be sold for $228,000, what is the minimum amount that Ding's creditors would have received? A) $36,000. B) $0. C) $2,500. D) $38,720. E) $67,250. Answer: C Difficulty: Medium [QUESTION] 16. A local partnership was considering the possibility of liquidation since one of the partners (Ding) was insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. D L E T i n g , c a p $i t a u r e l , c a p 6 z z a r d , c a p1 i l l m a n , c a a 6l 0 , 0 0 0 i 7t a , 0l 0 0 i 7 t a, 0 l 0 0 p 9 i 6 t a , 0l 0 0 Ding's creditors filed a $25,000 claim against the partnership's assets. At that time, the partnership held assets reported at $360,000 and liabilities of $120,000. If the assets could be sold for $228,000, what is the minimum amount that Laurel's creditors would have received? A) $36,000. B) $0. C) $2,500. D) $38,250. E) $67,250. Answer: D Difficulty: Medium [QUESTION] 17. A local partnership was considering the possibility of liquidation since one of the partners (Ding) was insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. D L E T i n g , c a p $i t a u r e l , c a p 6 z z a r d , c a p1 i l l m a n , c a a 6l 0 , 0 0 0 i 7t a , 0l 0 0 i 7 t a, 0 l 0 0 p 9 i 6 t a , 0l 0 0 Ding's creditors filed a $25,000 claim against the partnership's assets. At that time, the partnership held assets reported at $360,000 and liabilities of $120,000. If the assets could be sold for $228,000, what is the minimum amount that Ezzard's creditors would have received? A) $36,000. B) $0. C) $2,500. D) $38,250. E) $67,250. Answer: B Difficulty: Medium [QUESTION] 18. A local partnership was considering the possibility of liquidation since one of the partners (Ding) was insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. D L E T i n g , c a p $i t a u r e l , c a p 6 z z a r d , c a p1 i l l m a n , c a a 6l 0 , 0 0 0 i 7t a , 0l 0 0 i 7 t a, 0 l 0 0 p 9 i 6 t a , 0l 0 0 Ding's creditors filed a $25,000 claim against the partnership's assets. At that time, the partnership held assets reported at $360,000 and liabilities of $120,000. If the assets could be sold, for $228,000 what is the minimum amount that Tillman's creditors would have received? A) $36,000. B) $0. C) $2,500. D) $38,250. E) $67,250. Answer: E Difficulty: Medium [QUESTION] 19. Dancey, Reese, Newman, and Jahn were partners who shared profits and losses on a 4:2:2:2 basis, respectively. They were beginning to liquidate their business. At the start of the process, capital balances were as follows: D R N J a a n c e y , c a p$ i t 7a e e s e , c a p i t 3a l 2 e w m a n , c a 5p 2i h n , c a p i t a l 2 l2 , 0 0 0 , 0 0 0 t , a0 l 0 0 4 , 0 0 0 Which one of the following statements is true? A) The first available $16,000 would go to Newman. B) The first available $16,000 would go to Dancey. C) The first available $8,000 would go to Jahn. D) The first available $8,000 would go to Reese. E) The first available $4,000 would go to Jahn. Answer: A Difficulty: Easy [QUESTION] 20. Which of the following will not result in the dissolution of a partnership? 1) Partners are incompatible and choose to cease operations. 2) Partners realize that the profit figures have failed to reach projected levels. 3) Retirement of a partner. 4) Death of a partner. A) 1 and 2 only B) 3 and 4 only C) 1, 2, and 3 D) 1, 2, 3, and 4 E) Neither 1, 2, 3, or 4 Answer: E Difficulty: Easy [QUESTION] 21. What accounting transactions are not recorded by an accountant during liquidation? A) The conversion of partnership assets into cash. B) The allocation of the resulting gains and losses. C) The payment of liabilities and expenses. D) Remaining unpaid debts settled, and the distribution of any remaining assets to the partners based on their profit and loss ratio. Answer: D Difficulty: Medium [QUESTION] 22. Which of the following statements is false concerning the Schedule of Liquidation? A) Liquidations may take a considerable length of time to complete. B) Frequent reporting by the accountant is rarely necessary. C) The Schedule of Liquidation provides a listing of transactions to date, current cash, and capital balances. D) The Schedule of Liquidation provides a listing of property still being held by the partnership and liabilities remaining unpaid. E) The Schedule of Liquidation keeps creditors and partners apprised of the results of the process of dissolution. Answer: B Difficulty: Medium [QUESTION] 23. What is the preferred method of resolving a partner's deficit balance, according to the Uniform Partnership Act? A) Partners never have a deficit balance. B) The other partners must contribute personal assets to cover the deficit balance. C) The partnership must sell assets in order to cover the deficit balance. D) The partner with a deficit balance must contribute personal assets to cover the deficit balance. E) The partner with a deficit balance contributes personal assets only if those personal assets exceed personal liabilities. Answer: E Difficulty: Easy [QUESTION] 24. Which of the following statements is true concerning the distribution of safe payments? A) The distribution of safe payments assumes that any capital deficit balances will prove to be a total loss to the partnership. B) Safe payments are equal to the recorded capital balances of partners with positive capital balances. C) The distribution of safe payments may only be made after all liabilities have been paid. D) In computing safe payments, partners with positive capital balances are assumed to absorb an equal share of any deficit balance(s). E) There are no safe payments until the liquidation is complete. Answer: A Difficulty: Medium [QUESTION] 25. Which of the following is the proper ranking order of property distributions stipulated by the Uniform Partnership Act? A) Those owing to partners by way of contribution, those owing to partnership creditors, those owing to separate creditors. B) Those owing to separate creditors, those owing to partnership creditors, those owing to partners by way of contribution. C) Those owing to separate creditors, those owing to partners by way of contribution, those owing to partnership creditors. D) Those owing to partners by way of contribution, those owing to separate creditors, those owing to partnership creditors. E) Those owing to partnership creditors, those owing to partners by way of contribution, those owing to separate creditors. Answer: B Difficulty: Easy [QUESTION] 26. Which statement below is correct? A) If a partner of a liquidating limited liability partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the income-sharing ratio of those partners. B) Gains and losses from the sale of noncash assets are divided in the ratio of the partners' capital account balances if there is no income-sharing plan in the partnership contract. C) A loan receivable from a partner is added to the partner's capital account balance in the preparation of a cash distribution plan. D) Partners may receive cash before creditors receive cash when liquidating a limited liability partnership. E) All cash payments to partners are made using their income-sharing ratio when liquidating the partnership. Answer: A Difficulty: Easy [QUESTION] 27. The marshaling of assets doctrine regulates claims against an individual's assets. The following lists groups interested in potential cash distributions. (1.) those owed to the creditors of the partnership (2.) those owed to separate creditors (3.) those owed to partners by way of contribution When a partner is bankrupt, which order do claims against their property rank? A) 1, 2, 3. B) 2, 1, 3. C) 3, 2, 1. D) 1, 3, 2. E) 3, 1, 2. Answer: B Difficulty: Medium [QUESTION] 28. Which statement below is false? A) The purpose of a marshaling of assets is to protect the interests of various creditors. B) The marshaling of assets gives order and structure to the settling of claims. C) When a partner is insolvent, the partner's personal assets should first be used to settle the claims of his or her personal creditors. D) After a partner’s personal creditors are satisfied, any remaining personal assets may be used to pay creditors of the partnership. E) Partnership assets may be used to pay a partner’s personal creditor prior to payment to partnership creditors. Answer: E Difficulty: Medium [QUESTION] 29. Which item is not shown on the schedule of partnership liquidation? A) Current cash balances. B) Property owned by the partnership. C) Liabilities still to be paid. D) Personal assets of the partners. E) Current capital balances of the partners. Answer: D Difficulty: Easy [QUESTION] 30. Under the marshaling of assets doctrine, personal creditors can claim a partner’s share of partnership assets under which condition? A) When payment of all partnership debts is assured. B) When the insolvent partner has a positive capital balance. C) .When payment of all partnership debts is assured and the insolvent partner has a positive capital balance. D) When the other partner’s agree to the claim.. E) Personal creditors can not claim a partner’s share of partnership assets. Answer: C Difficulty: Medium [QUESTION] 31. Harding, Jones, and Sandy is in the process of liquidating and the partners have the following capital balances; 20,000, 22,000, and (10,000) respectively. The partners share all profits and losses 50%, 35%, and 15%, respectively. Sandy has indicated that the (10,000) deficit will be covered with a forthcoming contribution. The remaining partners have requested to receive $18,382 in cash that is available. How should this cash be distributed? A) Harding $7,500; Jones $18,882. B) Harding $10,813; Jones $7,569. C) Harding $8,000; Jones $18,382. D) Harding $9,000; Jones $17,382. E) Harding $7,000; Jones $19,382. Answer: B Difficulty:Hard [QUESTION] 32. Gonda, Herron, and Morse is considering possible liquidation because Morse is insolvent. The partners have the following capital balances: $60,000, $70,000, and $40,000, respectively, and share profits and losses 30%, 45%, and 25%, respectively. The partnership has $200,000 in assets that can be sold for $150,000. What is the minimum that Morse’s creditors would receive if they have filed a claim for $50,000? A) $0. B) $27,500. C) $45,000. D) 47,500. E) 50,000. Answer: B Difficulty Medium [QUESTION] 33. White, Sands, and Luke has the following capital balances and profit and loss ratios; $50,000 (30%), $100,000 (20%) and $200,000 (50%). If the partnership is to be liquidated and $150,000 becomes available for the partners immediately, who gets the money? A) $0 White; $57,143 Sands; $92,857 Luke. B) $10,000 White; $47,143 Sands; $92,857 Luke. C) $0 White; $47,143 Sands; $102,857 Luke. D) $20,000 White; $57,143 Sands; $82,857 Luke. E) $30,857 White; $57,143 Sands; $62,000 Luke. Answer: A Feedback: Since the partnership currently has total capital of $350,000, the $150,000 that is available would indicate maximum potential losses of $200,000 that is hypothetically split among the partners. Difficulty: Medium [QUESTION] 34. A local partnership has assets of cash of $5,000 and a building worth $80,000. All liabilities have been paid and the partners are all insolvent. The partners capital accounts are as follows Harry $40,000, Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2. If the building is sold for $50,000, how much cash will Harry receive in the final settlement? A) $5,000. B) $9,000. C) $18,000. D) $28,000. E) $55,000. Answer: D Difficulty:Easy [QUESTION] 35. A local partnership has assets of cash of $5,000 and a building worth $80,000. All liabilities have been paid and the partners are all insolvent. The partners capital accounts are as follows Harry $40,000, Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2. If the building is sold for $50,000, how much cash will Waters receive in the final settlement? A) $5,000. B) $9,000. C) $18,000. D) $28,000. E) $55,000. Answer: B Difficulty: Easy [QUESTION] 36. A local partnership has assets of cash of $13,000 and land worth $70,000. All liabilities have been paid and the partners are all insolvent. The partners capital accounts are as follows Roberts, $50,000, Ferry, $30,000 and Mones, $3,000. The partners share profits and losses 5:3:2. If the land is sold for $45,000, how much cash will Roberts receive in the final settlement? A) $0. B) $3,000. C) $21,750. D) $36,250. E) $50,250. Answer: D Difficulty:Easy [QUESTION] 37. A local partnership has assets of cash of $13,000 and land worth $70,000. All liabilities have been paid and the partners are all insolvent. The partners capital accounts are as follows Roberts, $50,000, Ferry, $30,000 and Mones 3,000. The partners share profits and losses 5:3:2. If the land is sold for $45,000, how much cash will Mones receive in the final settlement? A) $0. B) $1,500. C) $3,000. D) $21,750. E) $36,250. Answer: A Difficulty: Easy Essay [QUESTION] 38. Matching (1.) The schedule of liquidation (2.) Deficit capital balances (3.) Marshaling of assets (4.) Predistribution plan (A.) A schedule of liquidation should be produced periodically by the accountant to disclose losses and gains that have been incurred, remaining assets and liabilities, and current capital balances. (B )At the start of a liquidation, this document provides guidance for all payments made to the partners throughout the liquidation (C.) One or more partners may have a negative capital balance often as a result of losses incurred in disposing of assets. (D.) Provides an equitable system for distributing assets during liquidation. Answer: (1) A, (2) C, (3) D, (4) B Difficulty: Easy [QUESTION] 39. What is the role of the accountant during the liquidation process? Answer: The accountant works to ensure the equitable treatment of all parties involved in the liquidation. The accountant is responsible for recording and reporting the conversion of partnership assets into cash, the allocation of gains and losses, the payment of liabilities and expenses, and any remaining unpaid debts and distributions to the partners. Difficulty: Easy [QUESTION] 40. The partnership of Rayne, Marin, and Fulton was being liquidated by the partners. Rayne was insolvent and did not have enough assets to pay all of his personal creditors. Under what conditions might Rayne’s personal creditors have claimed some of the partnership assets? Answer: Rayne's personal creditors might have claimed some partnership assets if Rayne had a credit balance in his capital account and the claims of the partnership's creditors had been satisfied. Difficulty: Medium [QUESTION] 41. What term is used for the ranking of creditors' claims against an individual? Answer: The appropriate term is a marshaling of assets. Difficulty: Easy [QUESTION] 42. The Arnold, Bates, Carlton, and Delbert partnership was liquidating. It had paid all of its liabilities and had some assets yet to be sold. The partners had capital account balances of ($50,000), $90,000, $110,000, and $130,000. There was $40,000 cash available for distribution to the partners. What procedures would be followed to determine the amount of cash that could safely be distributed to each partner? Answer: To determine the amount of cash that can be safely distributed to each partner, one should assume that maximum losses will be realized on the disposal of noncash assets, estimate liquidation expenses, and assume that any partners with deficit balances cannot pay them. Difficulty: Medium [QUESTION] 43. Xygote, Yen, and Zen were partners who were liquidating their partnership. Each partner was insolvent. All assets had been liquidated and all liabilities had been paid. How should any remaining cash have been distributed to the partners? Answer: All partners with deficits in their capital accounts should transfer personal assets to the partnership to eliminate their deficits. Then each partner should receive an amount of cash equal to his or her capital balance. Difficulty: Easy [QUESTION] 44. What is the purpose of a predistribution plan? Answer: The purpose of a predistribution plan is to determine how assets should be distributed to creditors and partners as the partnership's noncash assets are realized. A predistribution plan would be particularly useful for a liquidation that takes a long time to complete. Difficulty: Easy [QUESTION] 45. What financial schedule would be prepared for a partnership that has begun liquidation but has not yet completed the process? What is the purpose of this schedule? Answer: The appropriate financial schedule is a schedule of liquidation. The purpose of this schedule is to report to partners and creditors on the progress of the liquidation to date, summarizing the various transactions that have occurred. Difficulty: Easy [QUESTION] 46. What events or circumstances might force the termination of a partnership and liquidation of its assets? Answer: There are many events or situations that can lead to the termination of a partnership and the liquidation of its assets. These circumstances include insolvency of the partnership and dissension among the partners. A partnership would be liquidated if it was formed to accomplish a specific purpose and has no further usefulness. Liquidation of the partnership may be required whenever there is a large claim against the partnership's assets. Such a claim might occur through the loss of a lawsuit and the payment of a large judgment, the insolvency of a partner, or the death or retirement of a partner. Difficulty: Easy [QUESTION] 47. What are the provisions of the marshaling of assets doctrine? Answer: The marshaling of assets doctrine regulates claims against an individual's assets. When a partner is bankrupt or his or her estate is insolvent, claims against his or her separate property rank in the following order: (1.) those owed to separate creditors (2.) those owed to the creditors of the partnership (3.) those owed to partners by way of contribution Difficulty: Medium [QUESTION] 48. For a partnership, how should liquidation gains and losses be accounted for? Answer: Gains and losses on the liquidation of assets should be allocated to the partners' capital accounts using the profit and loss sharing ratio. Difficulty: Easy [QUESTION] 49. What is the purpose of a marshaling of assets? What are the provisions that must be complied with in a marshaling of assets? Answer: The purpose of a marshaling of assets is to protect the interests of various creditors and to give order and structure to the settling of claims. When a partner or his or her estate is insolvent, the partner's personal assets should first be used to settle the claims of his or her personal creditors. Next, the assets may be used to pay creditors of the partnership. Finally, the remaining assets of the partner may be distributed to the other partners (assuming that the partner has a debit balance in his or her capital account). Difficulty: Medium [QUESTION] 50. What should occur when a solvent partner has a deficit balance? Answer: The partner should contribute personal assets to the extent of the deficit balance. Difficulty: Easy [QUESTION] 51. Why is a Schedule of Liquidation prepared? Answer: To provide information to the creditors and partners about liquidation transactions to date, property still being held by the partnership, liabilities remaining to be paid, and current cash and capital balances. Difficulty: Medium [QUESTION] 52. What is a safe cash payment? Answer: A fair allocation of funds made available before liquidation has been completed. Safe cash payments are based on the assumption that any capital deficits will prove to be a total loss to the partnership and must be absorbed by the remaining partners based on their relative profit and loss ratio. Difficulty: Medium [QUESTION] 53. The Albert, Boynton, and Creamer partnership was in the process of liquidating its assets and going out of business. Albert, Boynton, and Creamer had capital account balances of $80,000, $120,000, and $200,000, respectively, and shared profits and losses in the ratio of 1:3:2. Equipment that had cost $90,000 and had a book value of $60,000 was sold for $24,000. Required: Prepare the appropriate journal entry. Answer: Cash 24,000 Accumulated Depreciation 30,000 Albert, Capital 6,000 Boynton, Capital 18,000 Creamer, Capital 12,000 Equipment 90,000 Difficulty: Easy [QUESTION] 54. The Amos, Billings, and Cleaver partnership had two assets: (1) cash of $40,000 and (2) an investment with a book value of $110,000. The ratio for sharing profits and losses is 2:1:1. The balances in the capital accounts were: Amos, capital: $45,000 Billings, capital: $75,000 Cleaver, capital: $30,000 Required: If the investment was sold for $80,000, how much cash would each partner have received? Answer: A B C m o s –( $ ( $4 35 0, 0 , 00 00 0 l o s $ s x 3 0 . 5 , 0 ) )0 0 i gl l s i n ( $ 7– (5 $ , 03 00 0, 0 0 0 l o s 6 s 7 x , 5 . 02 05 ) ) l e a v e r– ( $ 3 0 , 0 0 0 l o s 2 s 2 x , 5 . 02 05 ) ) Difficulty: Medium REFERENCE: Ref. 15_01 As of January 1, 2007, the partnership of Canton, Yulls, and Garr had the following account balances and percentages for the sharing of profits and losses: Cash $ 80,000 Noncash assets 205,000 Liabilities 47,000 Canton, capital (30%) Yulls, capital (40%) Garr, capitl (30%) 138,000 119,500 (19,500) The partnership incurred losses in recent years and decided to liquidate. The liquidation expenses were expected to be $10,000. [QUESTION] REFER TO: Ref. 15_01 55. 1) How much cash should have been distributed safely to partners at this time? 2) How much cash should each partner have received at this time? Answer: 1) The amount of cash that could be distributed to partners at this time = current cash balance – liabilities – liquidation expenses = $23,000. 2) To determine the amount to be distributed to partners, assuming maximum losses on liquidation: Capital balances Loss on sale of assets Liquidation expenses Balances Allocation of deficit Balances Allocation of deficit Balance Canton $138,00 0 (61,50 0) (3,00 0) $73,50 0 (36,00 0) $ 37,500 (14,50 0) $ 23,000 Yulls $119,500 (82,000 ) (4,000) $ 33,500 (48,000) $(14,500) 14,500 $ 0 Garr $(19,50 0) (61,50 0) (3,00 0) $(84,00 0) 84,000 $ 0 Total $238,00 0 (205,00 0) (10,00 0) $ 23,000 0 $ 23,000 ______ $ 23,000 _______ $ 0 The entire $23,000 should have been distributed to Canton. Difficulty: Medium [QUESTION] REFER TO: Ref. 15_01 56. What would be the maximum amount Garr might have had to contribute to the partnership to eliminate a deficit balance in his account? Answer: Capital balances Loss on sale of assets Liquidation expenses Balances Canton $138,00 0 (61,50 0) (3,00 0) $73,50 0 Yulls $119,500 (82,000 ) (4,000) $ 33,500 Garr $(19,50 0) (61,50 0) (3,00 0) $(84,0 00) Total $238,00 0 (205,00 0) (10,00 0) $ 23,000 The maximum amount that Garr might have had to contribute to eliminate a deficit would have been $84,000, assuming that the noncash assets cannot be sold and become a total loss to the partnership. Difficulty: Medium [QUESTION] REFER TO: Ref. 15_01 57. If the noncash assets were sold for $105,000, what would have been the maximum amount of cash that Canton could have expected to receive? Answer: The maximum amount that Canton could have expected to recover was $105,000. This assumes that Garr could have covered his deficit: Canton $138,00 0 (30,00 0) (3,00 0) $105,0 00 Yulls $119,500 (40,000 ) (4,000) $ 75,500 Garr $(19,50 0) (30,00 0) (3,00 0) $(52,50 0) Total $238,00 0 (100,00 0) (10,00 0) $ 128,000 Capital balances Loss on sale of assets Liquidation expenses Balances Difficulty: Medium [QUESTION] 58. A partnership had the following account balances: Cash, $91,000; Other Assets, $702,000; Liabilities, $338,000; Polk, Capital (50% of profits and losses), $221,000; Garfield, Capital (30%), $143,000; Arthur, Capital (20%), $91,000. The company liquidated and $10,400 became available to the partners. Required: Who would have received the $10,400? Answer: Since the partnership had total capital of $455,000, the $10,400 that was available would have indicated maximum potential losses of $444,600. The $10,400 would have gone to Garfield ($8,840) and Arthur ($1,560). Difficulty: Medium [QUESTION] 59. A partnership held three assets: Cash, $13,000; Land, $45,000; and a Building, $65,000. The partners anticipated that expenses required to liquidate their partnership would amount to $6,000. Capital balances were as follows: King, Capital: $32,700 Murphy, Capital: 36,400 Madison, Capital: 26,000 Pond, Capital: 27,900 The partners shared profits and losses 30:30:20:20, respectively. Required: If a preliminary distribution of cash was to be made, how much would each of the partners have received? Answer: Murphy received $700, Madison received $2,200, and Pond received $4,100. King Recorded balances Maximum losses on land and building ($110,000) allocated on a 3:3:2:2 basis Estimated liquidation expenses ($6,000) allocated 3:3:2:2 Potential balances Potential loss from King ($2,100) allocated 3:2:2 Cash distributions Difficulty: Medium $ $32,700 Murphy $36,400 Madiso n $26,00 0 (22,00 0) ( 1,20 0) $ 2,800 60 0) $ 2,200 ( Pond $27,90 0 (22,00 0) 1,20 0) $ 4,700) 60 0) $ 4,100 (33,00 0) 1,80 0) $ ( 2,100 ) 2,10 0 0 ( ( (33,00 0) 1,80 0) $ 1,600 ( $ 900) 700 ( ( REFERENCE: Ref. 15_02 On January 1, 2009, the partners of Won, Cadel, and Dax (who shared profits and losses in the ratio of 5:3:2, respectively) decided to liquidate their partnership. The trial balance at this date was as follows: Debit Credit Cash $ 23,400 Accounts Receivable 85,800 Inventory 67,600 Machinery and equipment, net 245,700 Won, loan 39,000 Accounts payable $ 68,900 Cadel, loan 26,000 Won, capital 153,400 Cadel, capital 117,000 Dax, capital 96,200 Totals $ 461,500 $ 461,500 The partners planned a program of piecemeal conversion of the business assets to minimize liquidation losses. All available cash, less an amount retained to provide for future expenses, was to be distributed to the partners at the end of each month. A summary of liquidation transactions follows: January $66,300 was collected on the accounts receivable; the balance was deemed to be uncollectible. $49,400 was received for the entire inventory. $2,600 in liquidation expenses were paid. $65,000 was paid to outside creditors, after receiving a $3,900 credit memo from a creditor on January 11. Cash of $13,000 was retained at the end of the month to cover unrecorded liabilities and anticipated expenses. The balance of cash was distributed to the partners. $3,900 in liquidation expenses were paid. $7,800 in cash was retained at the end of the month to cover unrecorded liabilities and anticipated expenses. $189,800 was received on the sale of all machinery and equipment. $6,500 in final liquidation expenses were paid. No cash was retained as all cash was distributed to partners. February March [QUESTION] REFER TO: Ref. 15_02 60. Prepare a schedule to calculate the safe installment payments to be made to the partners at the end of January. Answer: Won, Cadel, and Dax Partnership Safe Installment Payments to Partners January 31, 2009 Profit and loss ratio Preliquidation capital balances Add (deduct) loans Subtotals January actual losses (Schedule 1) Partnership equity January 31, 2009 Potential losses (Schedule 1) Subtotals Potential loss – Won’s deficit balance Safe payments to partners: Proof of cash: Beginning $23,400 + collect A/R $66,300 + collect on inventory $49,400 – paid liq. expenses $2,900 – paid A/P $65,000 – cash retained $13,000 = $58,500. Won 50% $153,400 (39,000) 114,400 (18,200) 96,200 (129,350) (33,150) 33,150 $ 0 Cadel 30% $117,000 26,000 143,000 (10,920) 132,080 (77,610) 54,470 (19,890) $ 34,580 Dax 20% $96,200 0 96,200 (7,280) 88,920 (51,740) 37,180 (13,260) $23,920 Total 100% $366,600 (13,000) 353,600 (36,400) 317,200 (258,700) 58,500 0 $ 58,500 Schedule 1 Calculation of Actual and Potential Liquidation Losses January 2009 Actual Losses $19,50 0 18,20 0 2,60 0 (3,900) ______ $36,40 0 Potential Losses Collection of accounts receivable ($85,800 - $66,300) Sale of inventory ($67,600 - $49,400) Liquidation expenses Liability reduction from January credit memo Machinery and equipment, net Potential unrecorded liabilities and anticipated expenses Totals Difficulty: Medium $245,700 13,000 $258,700 [QUESTION] REFER TO: Ref. 15_02 61. Prepare a schedule to calculate the safe installment payments to be made to the partners at the end of February. Answer: Won, Cadel, and Dax Partnership Safe Installment Payments to Partners February 28, 2009 Won Cadel Dax Total Profit and loss ratio 50% 30% 20% 100% Partnership equity January 31, 2009 $96,200 $132,080 $88,920 $317,200 Safe payments to partners, January 31 February liquidation expenses Partnership equity February 28, 2009 Potential liabilities and expenses Potential loss on machinery and equipment Subtotals Potential loss – Won’s deficit Safe payments to partners Proof of cash: Beginning $13,000 – liq. expenses paid $3,900 – cash retained $7,800 = $1,300 Difficulty: Medium 0 ( 1,950) 94,250 ( 3,900) (122,850) ( 32,500) 32,500 $ 0 (34,580) 1,170) 96,330 ( 2,340) ( 73,710) 20,280 ( 19,500) $ 780 ( (23,920) ( 780) 64,220 ( 1,560) ( 49,140) 13,520 ( 13,000) $ 520 (58,500) 3,900) 254,800 ( 7,800) ( 245,700) 1,300 0 $ 1,300 ( [QUESTION] REFER TO: Ref. 15_02 62. Prepare a schedule to calculate the safe installment payments to be made to the partners at the end of March. Answer: Won, Cadel, and Dax Partnership Safe Installment Payments to Partners March 31, 2009 Won Cadel Dax Total Profit and loss ratio 50% 30% 20% 100% Partnership equity February 28, 2009 Safe payments to partners, February 28 Loss on sale of machinery and Equipment ($245,700 - $189,800) Liquidation expenses Safe payments to partners Difficulty: Medium REFERENCE: Ref. 15_03 Hardin, Sutton, and Williams has operated a local business as a partnership for several years. All profits and losses have been allocated on a 3:2:1 ratio, respectively. Recently, Williams has undergone personal financial problems, and is insolvent. To satisfy Williams' creditors, the partnership has decided to liquidate. The following balance sheet has been produced: Cash Noncash assets $ 10,000 227,0 00 Liabilities Hardin, capital Sutton, capital Williams, capital $ 80,000 96,0 00 45,0 00 16,0 00 $94,250 0 (27,950) (3,250) $63,050 $96,330 (780) (16,770) (1,950) $76,830 $64,220 (520) (11,180) (1,300) $51,220 $254,800 (1,300) (55,900) (6,500) $191,100 Total assets $ 237,000 Total liabilities and capital $ 237,000 During the liquidation process, the following transactions take place: - Noncash assets are sold for $116,000. - Liquidation expenses of $12,000 are paid. No further expenses are expected. - Safe capital distributions are made to the partners. - Payment is made of all business liabilities. - Any deficit capital balances are deemed to be uncollectible. [QUESTION] REFER TO: Ref. 15_03 63. Develop a predistribution plan for this partnership, assuming $12,000 of liquidation expenses are expected to be paid. Answer: (1.) The first $92,000 pays for liabilities and liquidation expenses. (2.) The next $28,500 goes to Hardin. (3.) The next $32,500 goes to Hardin (60%) and Sutton (40%). (4.) The remainder goes to all three partners in their 3:2:1 ratio. Hardin Sutton William s Beginning balances $ 96,000 $ 45,000 $ 16,000 Assumed $96,000 loss (Schedule A) ( 48,000) (32,000) (16,00 0) Subtotal $ 48,000 $ 13,000 $ 0 Assumed $32,500 loss (Schedule B) ( 19,500) (13,000) 0 Total $ 28,500 $ 0 $ 0 Schedule A: Partner Capital Balance/Loss Allocation $96,000/ 1/2 $45,000/ 1/3 $16,000/ 1/6 Maximum Loss that Can Be Absorbed $192,000 $135,000 $ 96,000 Harding Sutton Williams Schedule B: Partner Harding Sutton Difficulty: Medium Capital Balance/Loss Allocation $48,000/60% $13,000/40% Maximum Loss that Can Be Absorbed $ 80,000 $ 32,500 [QUESTION] REFER TO: Ref. 15_3 64. Compute safe cash payments after the noncash assets have been sold and the liquidation expenses have been paid. Answer: Safe Cash Payments: Hardin Sutton Williams Beginning balances $ 96,000 $ 45,000 $ 16,000 $12,000 liquidation expenses ( 6,000) ( 4,000) ( 2,000) $111,000 loss on sale of assets ( 55,50 (37,000) (18,500) 0) Subtotals $ 34,500 $ 4,000 ( 4,500) Absorption of deficit balance ( 2,700) ( 1,800) 4,500 Safe Cash Payments $34,000 $ 31,800 $ 2,200 $ 0 Difficulty: Medium [QUESTION] REFER TO: Ref. 15_03 65. Prepare journal entries to record the actual liquidation transactions. Answer: Cash 116,000 Hardin, capital 55,500 Sutton, capital 37,000 Williams capital 18,500 Noncash assets 227,000 Hardin, capital Sutton, capital Williams capital Cash Hardin, capital Sutton, capital Cash Liabilities Cash Hardin, capital Sutton, capital Williams, capital Difficulty: Medium [QUESTION] 66. Jones, Marge, and Tate LLP decided to dissolve and liquidate the partnership on September 31, 2009. After realization of a portion of the noncash assets, the capital account balances were Jones $50,000; Marge $40,000; and Tate $15,000. Cash of $35,000 and other assets with a carrying amount of $100,000 were on hand. Creditors' claims totaled $30,000. Jones, Marge, and Tate shared net income and losses in a 2:1:1 ratio, respectively. 6,000 4,000 2,000 12,000 31,800 2,200 34,000 80,000 80,000 $ 2,700 1,800 $ 4,500 Prepare a working paper to compute the amount of cash that may be paid to creditors and to partners at this time, assuming that no partner is solvent. Answer: Difficulty: Medium REFERENCE: Ref. 15_04 The balance sheet of Rogers, Dennis & Berry LLP prior to liquidation included the following: The three partners shared net income and losses in a 5:3:2 ratio, respectively. Noncash assets were sold for $60,000. Creditors were paid in full, partners were paid $35,000, and the balance of cash was retained pending future developments. [QUESTION] REFER TO: Ref. 15_04 67. Record the journal entry for the sale of the noncash assets. Answer: Cash 60,000 Rogers, Capital 10,000 Dennis, Capital 6,000 Berry, Capital 4,000 Assets 80,000 To record sale of noncash of assets at a loss of $20,000, divided in 5:3:2 ratio Difficulty: Medium . [QUESTION] REFER TO: Ref. 15_04 68. Record the journal entry for payment of outstanding liabilities to the creditors. Answer: Liabilities 20,000 Cash 20,000 To record payment to creditors. Difficulty: Easy [QUESTION] REFER TO: Ref. 15_04 69. Determine the cash to be retained and prepare a schedule to distribute $35,000 cash to the partners. Answer: Cash balance = $40,000 + sale noncash assets $60,000 – paid liabilities $20,000 – partners paid $35,000 = $45,000 ending balance retained for future expenses. Distribution of $35,000: Rogers Dennis Berry Capital (including Rogers's loan of $10,000) before liquidation $45,000 $30,000 $25,000 Actual loss on realization of assets (10,000) (6,000) (4,000) Balances $35,000 $24,000 $21,000 Retained cash for future expenses $45,000 (22,500) (13,500) (9,000) Cash payments $35,000 $12,500 $10,500 $12,000 Difficulty: Medium [QUESTION] REFER TO: Ref. 15_04 70 Record the journal entry for the cash distribution to the partners. Answer: Loan Payable to Rogers 10,000 Rogers, Capital 2,500 Dennis, Capital 10,500 Berry, Capital 12,000 Cash To record payment to partners, computed as shown above. Difficulty: Medium REFERENCE: Ref. 15_05 The partners of Donald, Chief & Berry LLP decided to liquidate on August 1, 2009. The balance sheet of the partnership is as follows, with the income-sharing ratio of 25%, 45%, 30% respectively. DONALD, CHIEF & BERRY LLP Balance Sheet April 1, 2009 Assets Liabilities & Partners’ Capital Cash $ 60,000 Trade accounts payable $130,000 35,000 Loans receivable from Donald Other assets Total 40,000 500,000 _______ $600,000 Loans payable to Chief Donald, capital Chief, capital Berry, capital Total 60,000 140,000 160,000 110,000 $600,000 The disposal of other assets with a carrying amount of $200,000 realized $140,000, and all available cash was distributed. [QUESTION] REFER TO: Ref. 15_05 71. Prepare the journal entry for Donald, Chief & Berry LLP on August 1, 2009, to record the realization of the other assets. Answer: Cash 140,000 Donald, Capital 15,000 Chief, Capital 27,000 Berry, Capital 18,000 Other Assets 200,000 To record realization of assets at a loss of $60,000, divided among Donald, Chief, and Berry. Difficulty: Medium [QUESTION] REFER TO: Ref. 15_05 72. Prepare the journal entry for Donald, Chief & Berry LLP on August 1, 2009, to record payment of liabilities. Answer: Trade Accounts Payable 130,000 Cash 130,000 To record payment of liabilities. Difficulty: Easy [QUESTION] REFER TO: Ref. 15_05 73. Prepare the journal entry for Donald, Chief & Berry LLP on August 1, 2009, to record the elimination of the loan receivable from Donald. Answer: Donald, Capital 40,000 Loan Receivable from Donald 40,000 To offset Donald's loan account against Donald's capital account. Difficulty: Easy [QUESTION] REFER TO: Ref. 15_05 74. Prepare the schedule to compute the cash payments to the partners. Answer: Capital account balances Add: Loan payable to Chief Less: Loan receivable from Donald Loss on realization of assets, $60,000 Balances Maximum potential loss of remaining noncash assets, $300,000 in 25:45:30 ratio Cash payment Donald $140,000 (40,000) (15,000) $ 85,000 (75,000) $ 10,000 Chief $160,000 60,000 ( 27,000) $193,000 ( 135,000) $ 58,000 Berry $110,000 (18,000) $ 92,000 $ (90,000) 2,000 Total cash of $70,000 can be safely distributed. Beginning cash $60,000 + sale of assets $140,000 – payment of liabilities $130,000 = $70,000. Difficulty: Hard