Question

Ruth invested $100,000 in the Doing Great partnership. The partnership is now being liquidated and Ruth has a deficit balance of $30,000. Which of the following statement is true?

Ruth responsibility and loss is constrained to the original $100,000 investment.

Ruth is responsible to pay the partnership additional $30,000, even if she would need to sell her personal assets in order to afford this payment.

Ruth should cover her deficit only if she can easily afford it.

Ruth is legally required to declare personal bankruptcy.

Ruth should initiate legal proceedings against the partnership.

Paris Corporation owns 70% of London Corporation, and 24% of Rome Corporation. London Corporation owns 30% of Rome Corporation. When Paris prepared its consolidated financial statements, it should include:

London and Rome

London but not Rome

Rome but not London

Either London or Rome

Neither London Nor Rome

The Fakahatchee partnership currently has the following balance sheet:

Cash	$       75,000		Accounts Payable	$       80,000
Other Assets	155,000		Alice, loan	40,000
Eva, loan	50,000		Eva, capital	58,000
			Debora, capital	55,000
			Alice, capital	47,000
Total	$    280,000		Total	$     280,000

Eva, Debora and Alice share profits and losses 3:2:5 respectively. You were asked by the partners to prepare a proposed schedule of liquidation. What will be the partners’ capital beginning balances on the schedule of liquidation (after taking into account partners loans)?

		Eva 58,000; Debora 55,000; Alice 47,000;
		Eva 8,000; Debora 55,000; Alice 87,000;
		Eva 108,000; Debora 55,000; Alice 87,000;
		Eva 8,000; Debora 55,000; Alice 7,000;
		None of the answers is correct

Answer 1

Answers are as follows:

1. Ruth is responsible to pay the partnership additional $30,000, even if she would need to sell her personal assets in order to afford this payment.

2. London but not Rome because London corporation is controlled (More than 51 % holding) by the Paris corporation. In case of Rome corporation the Paris corporation is having significance influence but not control (Less than 50 % indirect holding).

3. Partners’ capital beginning balances on the schedule of liquidation (after taking into account partners loans) will be as follows

Eva 8,000; Debora 55,000; Alice 87,000;

Eva (58000-50000) = 8000

Debora = 55000

Alice (40000+47000) = 87000