Question 38. The BIG Partnership has decided to liquidate at December 31, 20X8. The capital and loan balances of the partners at December 31, 20X8, are provided

38. The BIG Partnership has decided to liquidate at December 31, 20X8. The capital and loan balances of the partners at December 31, 20X8, are provided

below:

If you were to calculate the Loss Absorption Power for each partner, how would the partners rank (from highest to lowest LAP)?

A. B, I, G

B. I, B, G

C. B, G, I

D. G, I, B

39. Partner A has a smaller capital balance than Partner L. Partner A, however, has a higher profit-and-loss-sharing percentage than Partner L. The LA partnership has decided to liquidate. As a result of the information given,

A. Partner L will have a smaller loss absorption power than A.

B. Partner L will receive cash only after A has received cash.

C. Partner A will have a smaller loss absorption power than L.

D. Partner A will never receive any cash from partnership liquidation.

40. Which of the following statements is (are) true?

I. In the calculation of the loss absorption power for a partner, a partner’s loan balance (an amount that is owed by the partnership) should be added to the partner’s capital balance.

II. In liquidation, a partner’s loan balance (an amount that is owed by the partnership) should be paid to the partner as a creditor of the partnership after the outside creditors.

A. I only

B. II only

C. Both I and II

D. Neither I nor II

41. When a partnership is liquidated on a piecemeal basis and cash has been distributed properly to all partners as noncash assets have been turned into cash, all future cash distributions should be made:

I. In the profit and loss ratio.

II. According to the balances in the partners’ capital accounts.

A. I only

B. II only

C. Both I and II

D. Neither I nor II

42. The computation of a safe installment payment for the XYZ partnership resulted in only partner Z receiving cash. Which of the following statements is correct?

I. Partner Z lent the partnership cash, and the partnership had to pay back the loan to Z before distributing cash to X and Y.

II. After assuming all noncash assets were potentially worthless and that assumed capital deficits created in X’s and Y’s capital balances were losses to be allocated to Z; Z’s capital balance was the only capital balance left with a credit.

A. I only

B. II only

C. Either I or II

D. Neither I nor II

43. The JKL partnership liquidated its business in 20X9. Due to an expected long liquidation period, a cash distribution plan was developed. The initial sale and realization of cash from noncash assets resulted

in partner K properly getting $24,000. No other partners received cash along with K. Based upon this information, which of the following statements is correct?

I. K’s loss absorption power (LAP) was higher than J’s LAP and L’s LAP. II. K’s capital balance was substantially larger than the balances of J and L.

A. I only

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