ADVANCED FIN. ACCT. LL W/ACCESS>CUSTOM<
12th Edition
ISBN: 9781265074623
Author: Christensen
Publisher: MCG CUSTOM
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Textbook Question
Chapter 16, Problem 16.4C
Sharing Losses during Liquidation
Research
Hiller, Luna, and Welsh are attempting to form a partnership to operate a travel agency. They have agreed to share profits in a ratio of 4:3:2 but cannot settle on the terms of the partnership agreement relating to possible liquidation. Hiller believes that it is best not to get into any arguments about potential liquidation now because the partnership will be a success and it is not necessary to think negatively now. Luna believes that in the event of liquidation, any losses should be shared equally because each partner would have worked equally for the partnership’s success, or lack thereof. Welsh believes that any losses during liquidation should be distributed in the ratio of capital balances at the beginning of any liquidation because then the losses will be distributed based on a capital ability to bear the losses.
You have been asked to help resolve the differences and to prepare a memo to the three individuals including the following items.
Required
- Specify the procedures for allocating losses among partners stated in the Uniform Partnership Act of 1997 to be used if no partnership agreement terms are agreed upon regarding liquidation. (You may wish to access a copy of the UPA 1997 for this requirement.)
- Critically assess each partner’s viewpoint, discussing the pros and cons of each.
- Specify another option for allocating potential liquidation losses not included in the positions the three individuals currently take. Critically assess the pros and cons of your alternative.
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Students have asked these similar questions
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.
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…
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Chapter 16 Solutions
ADVANCED FIN. ACCT. LL W/ACCESS>CUSTOM<
Ch. 16 - What are the major causes of a dissolution? What...Ch. 16 - Prob. 16.2QCh. 16 - Prob. 16.3QCh. 16 - Prob. 16.4QCh. 16 - Contrast a lump-sum liquidation with an...Ch. 16 - Prob. 16.6QCh. 16 - Prob. 16.7QCh. 16 - Prob. 16.8QCh. 16 - Prob. 16.9QCh. 16 - Prob. 16.10Q
Ch. 16 - Prob. 16.11QCh. 16 - The installment liquidation process uses a...Ch. 16 - Prob. 16.13QCh. 16 - Prob. 16.14QCh. 16 - Prob. 16.15QCh. 16 - Cash Distributions to Partners Analysis The...Ch. 16 - Prob. 16.2CCh. 16 - Prob. 16.3CCh. 16 - Sharing Losses during Liquidation Research Hiller,...Ch. 16 - Prob. 16.1.1ECh. 16 - Prob. 16.1.2ECh. 16 - Prob. 16.1.3ECh. 16 - Prob. 16.1.4ECh. 16 - Prob. 16.1.5ECh. 16 - Prob. 16.1.6ECh. 16 - Prob. 16.1.7ECh. 16 - Prob. 16.2.1ECh. 16 - Prob. 16.2.2ECh. 16 - Prob. 16.2.3ECh. 16 - Prob. 16.2.4ECh. 16 - Prob. 16.2.5ECh. 16 - Prob. 16.2.6ECh. 16 - Prob. 16.3ECh. 16 - Prob. 16.4ECh. 16 - Prob. 16.5ECh. 16 - Prob. 16.6ECh. 16 - Prob. 16.7ECh. 16 - Prob. 16.8ECh. 16 - Confirmation of Cash Distribution Plan Refer to...Ch. 16 - Prob. 16.10ECh. 16 - Prob. 16.11.1AECh. 16 - Prob. 16.11.2AECh. 16 - Prob. 16.11.3AECh. 16 - Prob. 16.11.4AECh. 16 - Prob. 16.11.5AECh. 16 - Prob. 16.11.6AECh. 16 - Prob. 16.11.7AECh. 16 - Prob. 16.11.8AECh. 16 - Prob. 16.11.9AECh. 16 - Prob. 16.11.10AECh. 16 - Prob. 16.11.11AECh. 16 - Prob. 16.12AECh. 16 - Prob. 16.13PCh. 16 - Prob. 16.14PCh. 16 - Prob. 16.15PCh. 16 - Prob. 16.16PCh. 16 - Prob. 16.17PCh. 16 - Prob. 16.18PCh. 16 - Matching Terms Match the items in the left-hand...Ch. 16 - Prob. 16.20P
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