Chapter 16 Test Bank DISSOLUTION AND LIQUIDATION OF A PARTNERSHIP

Multiple Choice Questions

LO1 1.

Which statement is correct in describing the rank order of payments as specified by the Uniform Partnership Act? a. Payments to partners with loans to the partnership are ranked equally with payments to other creditors. b. Payments to partners with loans to the partnership are ranked ahead of payments to partners without loans to the partnership. c. Payments to other creditors are ranked ahead of payments to partners with loans to the partnership. d. After payments are made to other creditors and partners with loans to the partnership, payment can be made to partners with capital interests.

LO1 2.

Which of the following procedures is acceptable when accounting for a deficit balance in a partners capital account during partnership liquidation? a. A partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to zero. b. If a partner with a negative capital balance is personally insolvent, the negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to all the partners. c. If a partner with a negative capital balance is personally insolvent, the negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to those partners having positive balances. d. All the above procedures are acceptable.

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LO1 3.

A partnership dissolution differs from a liquidation in that a. payments are made to creditors before partners receive value. b. periodic payments to partners are made when cash becomes available. c. a partner withdraws from the business and the enterprise continues to function. d. full payment is made to all outside creditors before remaining cash is distributed to partners in a final lump sum payment.

LO1 4.

A partnership in liquidation has converted all assets into cash and paid all liabilities. According to the Uniform Partnership Act, the order of payment a. will have amounts due to partners with respect to their capital accounts take precedence over amounts owed by partners other than for capital and profits. b. will be according to the partners residual profit and loss sharing ratios. c. will have amounts owed by partners other than for capital and profits take precedence over amounts due to partners with respect to their capital accounts. d. Will be by any manner that is both reasonable and rational for the partnership.

LO1 5.

In partnership liquidation, how are partner salary allocations treated? a. Salary allocations take precedence over creditor payments. b. Salary allocations take precedence over amounts due to partners with respect to their capital interests, but not profits. c. Salary allocations take precedence over amounts due to partners with respect to their capital profits, but not capital interests. d. Salary allocations are disregarded.

LO1 6.

A simple partnership liquidation requires a. periodic payments to creditors and partners determined by a safe payments schedule. b. partnership assets to be converted into cash with full payment made to all outside creditors before remaining cash is distributed to partners in a lump sum payment. c. only creditors to be paid in an orderly manner. d. periodic payments to partners as cash becomes available.
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LO2 7.

In a simple partnership liquidation, the last remaining cash distribution should be made according to the ratio of a. the individual partners profit and loss agreement. b. the individual partner's capital accounts, increased by partner loans to the partnership. c. the individual partners capital accounts, increased by partnership loans to the partners and decreased by partner loans to the partnership. d. the individual partners capital accounts, decreased by partnership loans to the partners and increased by partner loans to the partnership.

LO2 8.

If conditions produce a debit balance in a partners capital account when liquidation losses are allocated a. the partner receives further allocations of liquidation losses, but not gains. b. the partner receives no further allocation of liquidation losses and gains. c. the partner is no longer obligated to partnership creditors. d. the partner has an obligation of personal net assets to the other partners.

Use the following information for questions 9, 10 and 11. On June 30, 2006, the Warle, Xin, and Yates partnership had the following fiscal year-end balance sheet: Cash Accounts receivable Inventory Plant assets-net Loan to Warle Total assets $ 4,000 6,000 14,000 12,000 6,000 42,000 Accounts payable Loan from Xin Warle, capital(20%) Xin, capital(30%) Yates, capital(50%) Total liab./equity $ 7,000 5,000 14,000 10,000 6,000 42,000

The percentages shown are the residual profit and loss sharing ratios. The partners dissolved the partnership on July 1, 2006,. and began the liquidation process. During July the following events occurred: * Receivables of $3,000 were collected. * The inventory was sold for $4,000. * All available cash was distributed on July 31, except for $2,000 that was set aside for contingent expenses.
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LO2 9.

The book value of the partnership equity (i.e., total equity of the partners) on June 30, 2006 is a. b. c. d. $60,000. $29,000. $30,000. $42,000.

LO2 10.

The cash available for distribution to the partners on July 31, 2006 is a. b. c. d. $ 2,000. $ 4,000. $ 7,000. $11,000.

LO2 11.

How much cash would Xin receive from the cash that is available for distribution on July 31? a. b. c. d. $ 0. $ 600. $1,000. $2,000.

LO2 12.

Hara, Ives, and Jack are in the process of liquidating their partnership. Since it may take several months to convert the other assets into cash, the partners agree to distribute all available cash immediately, except for $10,000 that is set aside for contingent expenses. The balance sheet and residual profit and loss sharing percentages are as follows: $ 400,000 200,000 Accounts payable Hara, capital (40%) Ives, capital (30%) Jack, capital (30%) Total liab./equity $ 200,000 135,000 216,000 49,000 600,000

Cash Other assets

Total assets

600,000

How much cash should Ives receive in the first distribution? a. b. c. d. $146,000. $147,000. $153,000. $156,000
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LO2 13.

Jade, Kahl, and Lane are in the process of liquidating their partnership. Lane has agreed to accept the inventory, which has a fair value of $60,000, as part of her settlement. A balance sheet and the residual profit and loss sharing percentages are as follows: $ 198,000 80,000 230,000 508,000 Accounts payable Jade, capital (40%) Kahl, capital (40%) Lane, capital (20%) Total liab./equity $ 149,000 79,000 140,000 140,000 508,000

Cash Inventory Plant assets Total assets

If the partners then distribute the available cash, Lane will receive a. b. c. d. LO2 14. $23,000. $29,000 $30,000. $34,000.

Under the rule of offset, what is the proper disposition of a partnership loan that was made from a partner who has a debit balance? a. The loan is first paid to the debtor partner before cash payments are made to partners. b. The loan is written off as a partnership loss if the partner does not have the cash to cover the debit balance. 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 charged off to the capital account of the debtor partner.

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LO3 15.

In partnership liquidations, what are safe payments? a. The amounts of distributions that can be made to the partners, after all creditors have been paid in full. b. The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership. c. The amounts of distributions that can be made to the partners, after all non-cash assets have been adjusted to fair market value. d. All the above are examples of the safe payments concept.

LO4 16.

If all partners are included in the first installment of an installment liquidation, then in future installments a. cash will be distributed according to the residual profit and loss sharing ratio. b. cash should not be distributed until all non-cash assets are converted into cash. c. a safe payments schedule must be prepared before each cash distribution to avoid excessive payments to partners. d. a cash distribution plan must be prepared so that partners will know when they will be included in cash distributions.

LO5 17.

The year-end balance sheet and residual profit and loss sharing percentages for the Lang, Maas, and Neal partnership on December 31, 2005, are as follows: $ 30,000 40,000 480,000 550,000 Accounts payable Loan from Maas Lang, capital (25%) Maas, capital (25%) Neal, capital (50%) Total liab./equity $ 200,000 50,000 70,000 80,000 150,000 550,000

Cash Loan to Lang Other assets Total assets

The partners agree to liquidate the business and distribute cash when it becomes available. A cash distribution plan for the Lang, Maas, and Neal partnership will show that cash available, after outside creditors are paid, will initially go to a. b. c. d. Lang Maas Maas Neal in in in in the the the the amount amount amount amount of of of of $20,000. $45,000. $55,000. $90,000.

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LO5 18.

In a schedule of assumed loss absorptions a. b. c. d. the partner with lowest loss absorption is eliminated last. it is necessary to have a cash distribution plan first. the least vulnerable partner is eliminated first. the most vulnerable partner is eliminated first.

LO5 19.

Which partner is considered the most vulnerable as a result of a computation of vulnerability rankings? a. The partner with the lowest vulnerability ranking, who has the lowest loss absorption potential. b. The partner with the lowest vulnerability ranking, who has the highest loss absorption potential. c. The partner with the highest vulnerability ratio, who has the lowest loss absorption potential. d. The partner with the highest vulnerability ranking, also has the highest loss absorption potential. also also also who

LO6 20.

The rank order is for claims against a bankrupt partner of I. Those owing to partners by way of contribution II.Those owing to separate creditors III.Those owing to partnership creditors a. b. c. d. II first; I second and III III first; II second and I I first; III second and II II first; III second and I third. third. third. third.

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LO2 Exercise 1 The balance sheet of the Alba, Blick, and Calvo partnership on January 1, 2006 (the date of partnership dissolution) was as follows: Cash Other assets Loan to Calvo Total assets $ 2,000 13,000 1,000 16,000 Liabilities Loan from Alba Alba, capital (20%) Blick, capital(40%) Calvo, capital(40%) Total liab./equity $ 4,010 500 990 4,500 6,000 16,000

In January, other assets with a book value of $8,000 were sold for $5,000 in cash. Required: Determine how distributed. LO2 Exercise 2 The partnership of Dale, Edgar, and Fred was dissolved, and by July 1, 2006, all assets had been converted into cash and all partnership liabilities were paid. The partnership balance sheet on July 1, 2006 (with partner residual profit and loss sharing percentages) was as follows: Cash $ 10,000 Fred, capital(30%) Dale, capital(40%) Edgar, capital(30%) Total equity $ 40,000 (20,000) (10,000) 10,000 the available cash on January 31, 2006 will be

Total assets

10,000

The value of partners' personal assets and liabilities on July 1, 2006 were as follows: Dale 45,000 $ 30,000 Edgar 30,000 $ 20,000 Fred 25,000 10,000

Personal assets Personal liabilities Required:

Prepare the final statement of partnership liquidation.

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LO2 Exercise 3 The balance sheet of the Omar, Paolo, and Quek partnership on November 1, 2006 (before commencement of partnership liquidation) was as follows: Cash Inventory Loan to Omar Loan to Quek Plant assets-net Total assets $ 58,000 60,000 8,000 14,000 70,000 210,000 Accounts payable Notes payable Omar, capital(40%) Paolo, capital(25%) Quek, capital (35%) Total liab./equity $ 34,000 62,000 24,000 26,000 64,000 210,000

Liquidation events in November were as follows: - The inventory was sold for $10,000 above book value; - Plant assets with a book value of $60,000 were sold for $34,000. Required: Determine how distributed. the available cash on November 31, 2006 should be

LO2 Exercise 4 A cash distribution plan for the Folger, Glover, and Hale partnership was as follows: Priority Creditors 100% Folger 70% 11/15 20% Glover 30% 35% 4/15 45% Hale

First $250,000 Next $100,000 Next $150,000 Remainder Required:

If $850,000 of cash was distributed by the partnership, how much was received respectively by the priority creditors, Folger, Glover, and Hale?

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LO2 Exercise 5 The balance sheet of the Jody, Kane, and Lark partnership on May 1, 2006 (before commencement of partnership liquidation) was as follows: Cash Inventory Loan to Jody Loan to Lark Plant assets-net Total assets $ 54,000 60,000 10,000 16,000 110,000 250,000 Accounts payable Notes payable Jody, capital (30%) Kane, capital (45%) Lark, capital (25%) Total liab./equity $ 28,000 60,000 32,000 90,000 40,000 250,000

Liquidation events in May were as follows: - The inventory was sold for $6,000 below book value; - Plant assets with a book value of $50,000 were sold for $60,000. Required: Determine how the available cash on April 30, 2006 should be distributed. LO2 Exercise 6 The balance sheet of the Nebe, Oak, and Pang partnership on October 1, 2006 (the date of partnership dissolution) was as follows: Cash Other assets Loan to Oak Total assets $ 3,000 33,000 4,000 40,000 Liabilities Loan from Nebe Nebe, capital (20%) Oak, capital (30%) Pang, capital (50%) Total liab./equity $ 9,000 1,000 3,000 6,000 21,000 40,000

In October, other assets with a book value of $15,000 were sold for $17,000 in cash. Required: Determine how distributed. the available cash on October 31, 2006 will be

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LO2 Exercise 7 The partnership of Hanly, Ide, and Jen was dissolved. By August 1, 2006, all assets had been converted into cash and all partnership liabilities were paid. The partnership balance sheet on August 1, 2006 (with partner residual profit and loss sharing percentages) was as follows: Cash $ 50,000 Hanly, capital(30%) Ide, capital(20%) Jen, capital(50%) Total equity $ 4,000 (60,000) 106,000 50,000

Total assets

50,000

The value of partners' personal assets and liabilities on August 1, 2006 were as follows: Hanly 74,000 $ 72,000 Ide 120,000 $ 80,000 Jen 56,000 60,000

Personal assets Personal liabilities Required:

Prepare the final statement of partnership liquidation.

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LO5 Exercise 8 Luis, Mac, Nel, and Oma are partners who share profits and losses 40%, 25%, 25%, and 10%, respectively. The partnership will be liquidated gradually over several months beginning January 1, 2006. The partnership trial balance at December 31, 2005 is as follows: Cash Accounts receivable Inventory Loan to Nel Furniture Equipment Goodwill Accounts payable Note payable Loan from Luis Luis, capital (40%) Mac, capital (25%) Nel, capital (25%) Oma, capital (10%) Totals $ Debits 3,000 19,000 25,000 5,000 15,000 10,000 12,000 $ Credits

89,000 $

14,000 30,000 5,000 15,000 9,000 12,000 4,000 89,000

Required: Prepare a cash distribution plan for January 1, 2006, showing how cash installments will be distributed among the partners as it becomes available.

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LO5 Exercise 9 Quan, Ray, Sen, and Tad are partners who share profits and losses 30%, 20%, 35%, and 15%, respectively. The partnership will be liquidated gradually over several months beginning January 1, 2006. The partnership trial balance at December 31, 2005 is as follows: Cash Accounts receivable Inventory Loan to Ray Furniture Equipment Goodwill Accounts payable Note payable Loan from Sen Quan, capital (30%) Ray, capital (20%) Sen, capital (35%) Tad, capital (15%) Totals $ Debits 3,000 10,000 25,000 4,000 15,000 18,000 10,000 $ Credits

85,000 $

12,000 30,000 6,000 12,000 9,000 12,000 4,000 85,000

Required: Prepare a cash distribution plan for January 1, 2006, showing how cash installments will be distributed among the partners as it becomes available. LO5 Exercise 10 A cash distribution plan partnership was as follows: Priority Creditors 100% for the Upton, Valenta, and Walker

Upton 44% 2/9 11%

Valenta 10% 1/9 44%

Walker 46% 2/3 45%

First $100,000 Next $180,000 Next $270,000 Remainder Required:

If $700,000 of cash was distributed by the partnership, how much was received respectively by the priority creditors, Upton, Valenta, and Walker?
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SOLUTIONS
Multiple Choice Questions 1. 2. 3. 4. 5. 6. 7. 8. 9. c c a c d b a d b ($14,000 Warle capital + $10,000 Xin capital + $6,000 Yates capital + $5,000 Loan from Xin $6,000 Loan to Warle) ($4,000 beginning balance + $3,000 cash collected + $4,000 for inventory sold - $7,000 of accounts payable - $2,000 for expenses)

10.

11.

d $ Warle 8,000 $ 2,000 ) ( 400 ) ( 5,600 3,000 ) ( 2,600 $ 3,000 ) ( 400 ) 400 0 ( $ Xin 15,000 3,000 ) 600 ) 11,400 $ ( ( Yates 6,000 $ 5,000 ) ( 1,000 ) ( 0 7,500 ) ( 7,500 ) $ 7,500 0 Total 29,000 10,000 ) 2,000 ) 17,000 15,000 ) 2,000

Equities,Jun 30 Inventory loss Contingency fund Subtotals Possible losses on remaining assets Subtotals Eliminate Yatess Deficit Subtotals Eliminate Warles Deficit Cash distribution

( (

( $ ( (

4,500 ) ( 6,900 $( 4,500 ) 2,400 400 ) 2,000

2,000

2,000

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12.

b Losses 40% Hara 135,000 30% Ives 216,000 30% Jack 49,000 60,000 ) 3,000 ) 14,000 ) 14,000 $ 0

Equities Possible loss on remaining assets Contingencies Subtotals Eliminate Jacks debit balance Safe payments

$ $ 200,000 10,000 ( ( $ ( $

80,000 ) ( 4,000 ) ( 51,000 $ 8,000 ) ( 43,000 $

60,000 ) ( 3,000 ) ( 153,000 $( 6,000 ) 147,000

13.

a 40% Jade 79,000 40% Kahl 140,000 20% Lane 140,000 60,000 ) 4,000 ) 46,000 ) 30,000 7,000 ) 23,000

Equities Distribute inventory to Lane and: recognize $20,000 loss Possible losses on plant Subtotal Eliminate Jades debit balance to Kahl & Lane Balance

$ ( ( $( $

$ (

8,000 ) ( 92,000 ) ( 21,000 ) $ 21,000 0 ( $

8,000 ) ( 92,000 ) ( 40,000 $ 14,000 ) ( 26,000 $

14. 15. 16.

b b a

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17.

c = 1 = 3 = 2 50% Neal 150,000

Vulnerability ranks: Lang equity ($70,000 - $40,000)/.25 = $120,000 Maas equity ($80,000 + $50,0000/.25 = $520,000 Neal equity ($150,000/.5) = $300,000 Assumed loss absorption: Equities Loss to eliminate Lang Subtotals Loss to eliminate Neal Subtotals $ ( 25% Lang 30,000 25% Maas 130,000

Total 310,000 120,000 ) 190,000

30,000 ) ( 0 $

30,000 ) ( 100,000 $

60,000 ) ( 90,000 $

( $

45,000 ) ( 55,000 $

90,000 ) ( 0 $

135,000 ) 55,000

18. 19. 20.

d a d

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Exercise 1 Alba, Blick, and Calvo Partnership Partnership Liquidation Schedule Cash Jan 1 Balance Sale of assets Subtotal $ $ NonFirst 20% 40% 40% Cash Rank Alba Blick Calvo Assets Debt Equity Equity Equity 2,000 $ 13,000 $ 4,010 $ 1,490 $ 4,500 $ 5,000 5,000 ( 8,000) ( 600) ( 1,200) ( 1,200) 7,000 $ 5,000 $ 4,010 $ 890 $ 3,300 $ 3,800

Safe Payments Schedule Alba Blick Calvo Equity Equity Equity 890 $ 3,300 $ 3,800 1,000)( 2,000)( 2,000) 110) 1,300 1,800 110 ( 55)( 55) 0 $ 1,245 $ 1,745

Partners pre-distribution balances Possible losses on non-cash assets Write off Alba 50-50 Cash distribution to partners

$ ( ( $

Cash distribution plan on January 31: First $4,010 goes to priority creditors, and then Blick receives $1,245 and Calvo receives $1,745.

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Exercise 2 Dale, Edgar, and Fred Partnership Final Statement of Partnership Liquidation Dale Edgar Fred Cash Capital Capital Capital Total 10,000 $( 20,000) $( 10,000) $ 40,000 $ 10,000 15,000 25,000 25,000 Edgars personal contribution Write-off Edgar Distribute cash ( $ 10,000 35,000 35,000 35,000) 0 ( $ 15,000 5,000) ( 5,000 ( 0 ( ( $ 10,000) 2,500) ( 12,500) 10,000 2,500) 2,500 ( 0 ( $ 40,000 2,500) 37,500 37,500 2,500) 35,000 15,000 25,000 25,000 10,000 35,000 35,000

Balance, July 1 $ Dales personal contribution Write-off Dale

35,000) ( 35,000) 0 $ 0

Exercise 3 Omar, Paolo, and Quek Schedule of Partnership Liquidation November 30, 2006 Assets $ 210,000 $ 10,000 ( 26,000) 194,000 22,000) 96,000) ( 76,000 10,000) 66,000 Debts 96,000 40% Omar 24,000 $ 4,000 10,400) ( 17,600 8,000) 9,600 4,000 ) 5,600 $ ( $ 25% 35% Paolo Quek 26,000 $ 64,000 2,500 3,500 6,500) ( 9,100) 22,000 22,000 2,500 ) 19,500 58,400 ( 14,000) $ 44,400 ( 3,500) $ 40,900

Balance, Nov. 1 Inventory sold Sale of plant Balances before distribution Offset loans ( Pay creditors ( Partner equity $ Possible loss: Plant assets ( Distribution $

$ (

96,000 96,000) ( $ ( $

(Cash Distribution: $58,000 + $70,000 + $34,000 - $96,000 = $66,000) Nov. 1 Inventory Plant Creditors Nov. 30
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Exercise 4 Priority Creditors 250,000 Folger $ 70,000 $ 110,000 70,000 250,000 $ Glover 30,000 $ 122,500 152,500 $ 40,000 157,500 197,500 Hale

First $250,000 Next $100,000 Next $150,000 Last $350,000 Total $850,000

250,000 $

Exercise 5 Jody, Kane, and Lark Schedule of Partnership Liquidation May 30, 2006 Assets $ 250,000 $ 10,000 ( 6,000) 254,000 26,000) 88,000)( 140,000 60,000) 80,000 Debts 88,000 $ ( 88,000 ( 30% Jody 32,000 $ 3,000 1,800) ( 33,200 10,000) 23,200 $ 45% 25% Kane Lark 90,000 $ 40,000 4,500 2,500 2,700) ( 1,500) 91,800 91,800 41,000 ( 16,000) $ 25,000

Balance, May 1 Plant sold Inventory sold Balances before distribution Offset loans ( Pay creditors ( Partner equity $ Possible loss: Plant assets ( Distribution $

88,000) $ ( $

18,000) ( 5,200 $

27,000) ( 15,000) 64,800 $ 10,000

(Cash Distribution: $54,000 + $54,000 + $60,000 - $88,000 = $80,000) May 1 Inventory Plant Creditors May 30

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Exercise 6 Nebe, Oak, and Pang Partnership Partnership Liquidation Schedule NonFirst 30% 20% 50% Cash Rank Oak Nebe Pang Assets Debt Equity Equity Equity Jan 1 Balance $ 3,000 $ 33,000 $ 9,000 $ 2,000 $ 4,000 $ 21,000 Sale of assets 17,000 ( 15,000) 600 400 1,000 Subtotal 20,000 18,000 9,000 2,600 4,400 22,000 Cash Safe Payments Schedule Oak Nebe Equity Equity 2,600 $ 4,400 5,400)( 3,600)( 2,800) 800 2,800 ( 800)( 0 $ 0 $ Pang Equity 22,000 9,000) 13,000 2,000) 11,000

Partners pre-distribution balances Possible losses on non-cash assets Write off Oak 2/7 and 5/7 Cash distribution to partners

$ ( ( $

Cash distribution plan on October 31: First $9,000 $11,000. goes to priority creditors, and then Pang receives

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Exercise 7 Hanly, Ide, and Jen Partnership Final Statement of Partnership Liquidation Ide Hanly Jen Cash Capital Capital Capital Total 50,000 $( 60,000) $ 4,000 $ 106,000 $ 50,000 40,000 90,000 90,000 Hanlys personal contribution Write-off Hanly 92,000 Distribute cash ( $ 92,000) 0 $ 2,000 92,000 ( 40,000 ( 20,000) 20,000 ( $ 0 $( 4,000 7,500)( 3,500) 2,000 1,500) 1,500 ( 0 ( $ 93,500 1,500) 92,000 106,000 12,500) 93,500 40,000 90,000 90,000 2,000 92,000 92,000

Balance, Aug. 1 $ Ides personal contribution Write-off Ide

92,000) ( 92,000) 0 $ 0

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Exercise 8 Loss absorption potential: Partners Equity $ 20,000 9,000 7,000 4,000 Profit and Loss Ratio 40% 25% 25% 10% Loss Absorption Potential 50,000 36,000 28,000 40,000 Vulnerability Ranking 4 2 1 3

Luis Mac Nel Oma

$ $ $ $

Schedule of assumed loss absorption: 40% Luis Partnership equity Assumed loss to absorb Nel Assumed loss to absorb Mac Assumed loss to absorb Oma $ 20,000 $ 25% Mac 9,000 $ 25% Nel 7,000 $ 10% Oma 4,000 Total $ 40,000

( 11,200 ) ( 8,800 ( ( $ 3,200 ) ( 5,600 1,600 ) 4,000

7,000 ) ( 2,000 2,000 ) 0

7,000 ) ( 0 ( ( $

2,800 ) ( 28,000 ) 1,200 12,000 800 ) ( 400 400 ) ( 0 $ 6,000 ) 6,000 2,000 ) 4,000

Cash distribution plan: First $44,000 pays the priority creditors; Next $4,000 goes to Luis; Next $2,000 goes $1,600 to Luis, and $400 to Oma; Next $6,000 goes $3,200 to Luis, $2,000 to Mac, and $800 to Oma; Remainder goes 40% to Luis, 25% to Mac, 25% to Nel, and 10% to Oma.

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Exercise 9 Loss absorption potential: Partners Equity 12,000 5,000 18,000 4,000 Profit and Loss Ratio 30% 20% 35% 15% Loss Absorption Potential 40,000 25,000 51,429 26,667 Vulnerability Ranking 3 1 4 2

Quan Ray Sen Tad

$ $ $ $

Schedule of assumed loss absorption: 30% Quan Partnership equity Assumed loss - absorb Ray Assumed loss to absorb Tad Assumed loss to absorb Quan $ ( ( ( $ 12,000 $ 15% Tad 4,000 $ 20% Ray 5,000 35% Sen $ 18,000 Total $ 39,000

7,500 ) ( 4,500 500 ) ( 4,000 $ 4,000 ) 0

3,750 ) ( 250 $ 250 ) 0

5,000 ) ( 0 ( ( $

8,750 ) ( 25,000 ) 9,250 14,000 583 ) ( 8,667 4,667 ) ( 4,000 $ 1,333 ) 12,667 8,667 ) 4,000

Cash distribution plan: First $42,000 pays the priority creditors; Next $4,000 goes to Sen; Next $8,667 goes $4,667 to Sen, and $4,000 to Quan; Next $1,333 goes $583 to Sen, $500 to Quan, and $250 to Tad; Remainder goes 35% to Sen, 30% to Quan, 20% to Ray, and 15% to Tad. Exercise 10 Priority Creditors 100,000 Upton $ 79,200 $ 60,000 16,500 155,700 $ Valenta 18,000 $ 30,000 66,000 114,000 $ Walker 82,800 180,000 67,500 330,300

First Next Next Last Total

$100,000 $180,000 $270,000 $150,000 $700,000

100,000 $

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