When a partnership is liquidated:
A)Noncash assets are distributed to partners.
B)Any gain or loss on liquidation is allocated to the partner with the highest capital account balance.
C)Liabilities are paid or settled.
D)Any remaining cash is distributed to the partners equally.
E)The business may continue to operate.

Question

Quizplus · Accepted Answer

When a partnership is liquidated, the first priority is to pay or settle all outstanding liabilities. Only after that, the remaining assets (both cash and non-cash) are distributed among the partners. The allocation of gains or losses on liquidation and the distribution of remaining cash depends on the partnership agreement and the capital account balances of each partner, but priority is given to paying off liabilities. The option of continuing to operate the business is not applicable in a liquidation scenario as the partnership is being dissolved.

When a Partnership Is Liquidated