BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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When a partnership is liquidated, all of the following may occur, except
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A partner erases his deficiency by declaring bankruptcy
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The other partners absorb a partner’s deficiency
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A partner erases his deficiency by contributing property
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A partner erases his deficiency by contributing cash
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Explanation:
Detailed explanation-1: -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-2: -A general dissolution will terminate the contracts of employment of all the partnership employees. The legislation provides that the bankruptcy of a partner shall cause the partnership to dissolve unless the partnership agreement provides otherwise [note 16].
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