Partnership Liquidation

Which partner receives the initial cash distribution under the cash distribution program?

• The partner with the large capital balance

• The partner with the largest profit and loss ratio

• The partner with the largest loss absorption potential

• The partner with the largest loan balance    

In a liquidation, the final distribution of cash to partners should be on the basis of their income ratios.

• True

• False

 If a partner has a capital deficiency and does not have the personal resources to eliminate it,

• the creditors will have to absorb the capital deficiency.

• the other partners will absorb the capital deficiency on the basis of their respective capital balances.

• the other partners will have to absorb the capital deficiency on the basis of their respective income sharing ratios.

• neither the creditors nor the other partners will have to absorb the capital deficiency.

When this happens, there will be a sale of non-cash assets, what do you call the termination of business?

• Realization

• Termination

• Liquidation

• Dissolution

Which of the following will not be a step in the process of liquidation?

• Pay partners for selling their interest

• Converting or selling all remaining properties and non-cash assets into cash with the gain or loss on conversion allocated to all the partners

• Paying partnership liabilities and liquidation expenses

• Distributing the remaining cash in payment of the partners’ (for loan and capital balances including profit share)

Payments to creditors and partners should be made in the following order:

I. Those owing to partners for their capital

II. Those owing to outside creditors (other than the partners’)

III. Those owing to partners for their share in the profits

IV. Those owing to the partners other than their capital balances and share in the profit

• I, II, III, IV

• II, I, III, IV

• II, IV, I, III

• I, IV, III, II

When a partner becomes insolvent, the claim against his separate properties shall be ranked in the following order:

I. Owing to partnership creditor

II. Owing to personal creditor

III. Owing to other partners for contribution made

• I, II, III

• II, I, and III

• III, I, II

A limited partner shall not receive any part of his contribution until all liabilities of the firm have been paid, except to general partners and to all limited partners, and there remains property of the partnership sufficient to pay them.

• True

• False

Capital deficiency result when the share of the partners in the partnership losses (whether from operating activities or sale of asset) is lower than his or her capital balance.

• True

• False

Partner’s interest represent the sum of :

• loan receivable from partner and capital balance of that partner

• loan payable to the partners and capital balance of that partners.

• loan payable to creditors and capital balance of that partner

• only capital balance of partner