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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During 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.
Which 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.
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…
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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- In 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, 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_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 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_forwardWhich 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_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
- Answer if TRUE or FALSE. If the statement is FALSE provide at least a brief explanation why it's wrong. 1. Liquidation expenses which are incurred in the realization of non-cash assets affect cash but not partners' capital. 2. A partnership is generally liquidated when its term is terminated. 3. The outside creditors of the partnership have better claims over the personal assets of the partner. 4. Gains and losses arising from the sale of the assets in a partnership liquidation are always divided equally among partners.arrow_forwardWhich of the following is true regarding capital deficiencies? O a Ob Oc Od The partners do not have a legally enforceable claim against the partner with the capital deficiency. If a partner with a capital deficiency is unable to pay the amount owed to the partnership, the partners with debit balances must absorb the loss. The loss is allocated based on the profit and loss ratios between the partners whether with credit or debit balances. if the partner with the capital deficiency pays the amount owed to the partnership, the deficiency is eliminated.arrow_forwardI need the answer as soon as possiblearrow_forward
- S1: In liquidation process, the noncash assets are sold only to outside parties but never to any of the partners. S2: An insolvent partners’ capital deficiency can be solved by his additional cash contribution. a. Both statements are correct b. Both statements are incorrect c. Only S1 is correct. d. Only S1 is incorrect.arrow_forwardClaims against partners personal assets by creditors if the partnership can't pay its debts refers to? a liquidation differs from a dissolution in that in a liquidation?arrow_forwardChoose the correct.Which of the following statements is true concerning the accounting for a partnership going through liquidation?a. Gains and losses are reported directly as increases and decreases in the appropriate capital account.b. A separate income statement is created to measure only the profit or loss generated during liquidation.c. Because gains and losses rarely occur during liquidation, no special accounting treatment is warranted.d. Within a liquidation, all gains and losses are divided equally among the partners.arrow_forward
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