COMPLETE MULTIPLE CHOICE QUESTIONS Chapter 16

Choose the BEST answer for the following questions.

_____ 1. How does a partnership liquidate?

a. The business closes, the noncash assets are liquidated, the creditors are paid, and the

remaining cash is distributed to the partners

b. The partners take what cash there is and then declare bankruptcy

c. The partners pay the bills and split up the assets

d. One of the partners sells his or her share of the partnership to another partner

_____ 2. What is the UPAs order of payment?

a. To creditors other than partners, to partners in respect of capital, in respect of profits, and

in respect of liabilities

b. To partners in respect of profits, in respect of liabilities, in respect of capital, and to other

creditors

c. To creditors other than partners, and to partners in respect of liabilities, in respect of

capital, and in respect of profits

d. To creditors other than partners, and to partners in respect of profits, in respect of

liabilities and in respect of capital

_____ 3. Marshalling of assets is

a. an order of how the personal creditors of the partners seek payment

b. an order of how the partnership creditors seek payment

c. an order of how the partnership and personal creditors of the partners seek payment

d. when the partnership is bankrupt and its assets are taken by the court

_____ 4. In a liquidation, when assets are sold for less than book value, what disposition is made of the

loss?

a. The loss is divided among the partners in their capital balance ratio

b. The loss is divided among the partners in their profit and loss ratio

c. The loss is subtracted from the partner with the highest capital balance

d. The loss decreases the next years income

_____ 5. What is the purpose of an installment liquidation?

a. To spread the sale of assets out to maximize the return on the sales

b. To distribute the cash to creditors and then partners as quickly as possible

c. To create a schedule of safe payments

d. All of the above

_____ 6. What is the loss absorption potential?

a. The amount of loss a partnership can sustain and still have more equity than liabilities

b. The amount of loss the partners can sustain before their capital balances are dissipated

c. An amount used in a simple liquidation to determine cash payments

d. The amount of cash paid to each partner in a safe payment plan

_____ 7. The purpose of a safe payment plan is to

a. pay creditors

b. keep an amount of cash on hand for contingencies

c. make sure assets are sold for enough cash to pay the bills

d. make sure no money is paid to partners who later might owe money to the partnership

_____ 8. What is an advance plan for the distribution of cash?

a. An organized way to determine how cash should be allocated over time

b. An organized way to minimize the payments to creditors

c. An organized way to minimize the possibility for bankruptcy

d. An organized way to maximize returns to partners

_____ 9. If partners are jointly and severally liable for a partnership debt, it means the creditor

a. must name all partners in a lawsuit but each partner is only liable for a proportional

amount

b. must name all partners in a lawsuit and each partner is liable for the entire debt

c. may name any or all partners in a lawsuit but each partner is only liable for a proportional

amount

d. may name any or all partners in a lawsuit and each partner is liable for the entire amount

_____10. What is the difference between simple liquidation and installment liquidation?

a. Simple liquidation is when the partnership is easy to liquidate and installment liquidation

is when it is difficult

b. Simple liquidation is when there are only two partners; installment when there are more

than two partners

c. Simple liquidation waits to distribute money until all the assets are sold and liabilities are

paid; installment pays money over time

d. Simple liquidation pays money overtime; installment liquidation makes payments to

creditors over time

_____11. When a partnership incorporates, the partners

a. must sell all the assets of the partnership

b. transfer their ownership capital to stockholders equity

c. sell the partnership to another company

d. cannot keep the partnership books