[Candy Company] Milton, Ava, and Hiro own a candy company. The business is failing and Milton is declared bankrupt by the bankruptcy court. Ava wants to keep the business running because she is sure she can turn it around. Hiro tells her that, it's too late, the partnership is already over because of Milton. Ava tells him that no one has asked to end the partnership so they do not have to dissolve. The partnership debts include a loan to the bank, loans Ava made to the company, and the initial capital that all three partners invested. Milton has no money to pay any of their debts.
-In what order should the partnership's debts be paid?

Question

Quizplus · Accepted Answer

The correct order for paying off a partnership's debts typically prioritizes external debts over internal debts and contributions. Thus, the bank loan (an external debt) is paid first, followed by the loan to Ava (an internal debt), and finally, the capital contributions made by the partners are addressed. This prioritization ensures that the obligations to external creditors are satisfied before any repayments to partners.

[Candy Company] Milton, Ava, and Hiro Own a Candy Company