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College of Accountancy
ACADEMIC COUNCIL’s THE FORUM
ADVANCED FINANCIAL ACCOUNTING AND REPORTING
PARTNERSHIP ACCOUNTING
Part 5: Liquidation (Installment)
1. What is a cash distribution plan? 7. In a schedule of assumed loss absorptions
a. A guideline for the cash distributions made to a. the partner with lowest loss absorption is
partners during a liquidation. eliminated last.
b. A list of the procedures to be performed during a b. it is necessary to have a cash distribution plan
liquidation. first.
c. A determination of the final distribution to be c. the least vulnerable partner is eliminated first.
made to the partners on the settlement date. d. the most vulnerable partner is eliminated first.
d. A detailed list of the transactions that will
transpire in the reorganization of a partnership. 8. Which partner is considered the most vulnerable as a
result of a computation of vulnerability rankings?
2. In the installment liquidation of a partnership, each a. The partner with the lowest vulnerability ranking,
installment of cash is distributed: who also has the lowest loss absorption potential.
a. In the partners’ profit and loss ratio. b. The partner with the lowest vulnerability ranking,
b. In the ratio of partner’s capital account balances. who also has the highest loss absorption potential.
c. As agreed to by the partners. c. The partner with the highest vulnerability ratio,
d. As if no more cash would be forthcoming. who also has the lowest loss absorption potential.
d. In a schedule of assumed loss absorptions.
3. In calculating the safe payment, you assume:
a. Partnership liabilities have been paid. 9. In accounting for partnership liquidation, cash
b. No liquidation expenses will be paid. payments to partners after all nonpartner creditors’
c. All non-cash assets are worthless. claims have been satisfied, but before the final cash
d. Cash on Hand can be fully distributed. distribution, should be according to:
a. The partners’ relative profit and loss ratios.
4. In the preparation of schedule of safe payment to b. The final balances in partner capital accounts.
partners, cash withheld for future liquidation c. The partners’ relative share of the gain or loss on
expenses and unrecorded liabilities that may be liquidations.
discovered is treated as: d. Safe payments computation.
a. Operating expenses.
b. Liabilities. 10. In a partnership liquidation, the final cash distribution
c. Loss on realization. to the partners should be made in accordance with
d. Possible loss. the:
a. Partners’ profit and loss ratio.
5. In the cash distribution plan, how is the amount of b. Balances of the partners’ loan and capital
cash distribution determined? accounts.
a. By multiplying a partners’ profit and loss ratio by c. Ratio of the capital contributions by the partners.
his pre-liquidation capital balance. d. Ratio of the capital contributions less withdrawals
b. By subtracting a partner’s loss absorption by the partners.
potential from the loss absorption potential of the
next strongest partner. 11. Potato and Carrot are partners of PC Partnership
c. By subtracting a partners’ loss absorption sharing profits and losses equally. They decided to
potential from the loss absoption potential to the terminate the partnership when their capital balances
next strogest partner and dividing this difference are: Potato, Php750,000; Carrot, Php500,000. At this
by his profit and loss ratio. time, the partnership owes Carrot Php200,000, as
d. By multiplying a partners’ profit and loss ratio by evidenced by a promissory note. Upon liquidation,
the difference between his loss absorption cash of Php300,000 becomes available for distribution
potential and the loss absorption potential of the to the partners. In the final cash distribution, what
next strongest partner. would be the respective share of Potato and Carrot?
Potato Carrot
6. What is the largest possible loss from the realization of a. Php150,000 Php150,000
partnership assets that the accountant estimates when b. Php175,000 Php125,000
preparing a safe payment schedule? c. Php200,000 Php100,000
a. Book value of recorded assets d. Php275,000 Php 25,000
b. Book value of recorded non-cash assets
c. Fair value of recorded assets 12. The condensed balance sheet of Pencil, Paper, and
d. Fair value of recorded non-cash assets Calculator as of March 31, 2017 follows: