BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Safe payments computation
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The partners’ profit and loss sharing ratio
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The final balances in partners’ capital accounts
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Partners’ share of the gain or loss on liquidation
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Detailed explanation-1: -If the partnership decides to liquidate, the assets of the partnership are sold, liabilities are paid off, and any remaining cash is distributed to the partners according to their capital account balances.
Detailed explanation-2: -Partnership liabilities and expenses incurred during the liquidation are paid out of the partnership’s available cash. Any partnership cash remaining after paying liabilities and liquidation expenses is distributed to the individual partners on the basis of their respective capital balances.
Detailed explanation-3: -A liquidating distribution terminates a partner’s entire interest in the partnership. A current distribution reduces a partner’s capital accounts and basis in his interest in the partnership (“outside basis”) but does not terminate the interest.
Detailed explanation-4: -If a company goes into liquidation, all of its assets are distributed to its creditors based on a pre-determined priority order. Secured creditors are first in line, as their claims over assets are often secured by collateral and a contract.