Multiple Choice Question

1. If a partnership is liquidated, how is the final allocation of business assets made to the partners?

a. Equally.

b. According to the profit and loss ratio.

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.

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.

3. During 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 partners sharing in future gains and losses.

d. The partner with a deficit contributes enough assets to offset the deficit balance.

4. What is a predistribution plan?

a. A guideline for the cash distributions to partners during a liquidation.

b. A list of the procedures to be performed during a liquidation.

c. A determination of the final cash distribution to the partners on the settlement date.

d. A detailed list of the transactions that will transpire in the reorganization of a partnership.