l. If a partnership is liquidated, how is the final allocation of partners? a. E

Question

l. If a partnership is liquidated, how is the final allocation of partners? a. Equally b. According to the profit and loss ratico. c. According to the final capital account balances d. According to the initial investment made by each of the partners. 2. 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 Because gains and losses rarely occur during liquidation, no special accounting treatment c. is warranted. d. Within a liquidation, all gains and losses are divided equally among the partners. 3. D uring 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 part- ners sharing in future gains and losses. d. The partner with a deficit contributes enough assets to offset the deficit balance. 4. A local partnership is liquidating and is currently reporting the following capital balances: Angela, capital (50% share of all profits and losses). $ 19,000 Woodrow, capital (30%) 18,000 (12,000) Cassidy has indicated that a forthcoming contribution will cover the $12.000 deficit. Heo the two remaining partners have asked to receive the $25,000 in cash that is presently avail- able. How much of this money should each of the partners be given? a. Angela, S13,000; Woodrow, $12,000. b. Angela, S11,500; Woodrow, $13,500. c. Angela, S12,000; Woodrow, S13,000. d. Angela, S12,500: Woodrow, $12,500. wever

Explanation / Answer

1. C . According to the final capiltal account balances

Partnership liquidation is the process of closing the partnership and distributing its assets. Generally , the profit or losses are shared in the proft sharing ratio. However, when the partership is coming to an end, the respective partner needs to be returned what they have contributed in the ratio of the capital balances outstanding.So once when all the assets are sold off and liabilities are paid off, the remaining cash in hand is distributed to the partners according to their capital account balances.If there is a deficit in any of the parter's balance, that partner would need to contribute to the amount of deficit.

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