Partnership Liquidation

In realization of assets, a loss on realization is recognized when the proceeds received is less than the book value of the assets sold.

• True

• False

When the book value of the non-cash assets sold is not the same with the proceeds received, the difference is divided to the partners on an equal basis.

• True

• False

Loan payable to a partner has equal priority with amounts owed to creditors.

• True

• False

When an insolvent partner has a capital deficiency, the capital deficiency will be absorbed by the remaining solvent partners.

• True

• False

What is the journal entry to record the loss absorption by the remaining solvent partners?

• Dr. Cash

  Cr. Insolvent Partner's Capital Account

• Dr. Cash

  Cr. Solvent Partner's Capital Account

• Dr. Solvent Partner's Capital Account

  Cr. Insolvent Partner's Capital Account

• Dr. Insolvent Partner's Capital Account

  Cr. Solvent Partner's Capital Account

Capital deficiency happens

• when the capital account has a credit balance after asset realization

• when the capital account has a debit balance after asset realization

• when the partner is a limited partner

• when the partner is an industrial partner

One of the partners has a capital deficiency. (S)he has no loan balance that can be offset, but (s)he is a solvent partner. Decide.

• The capital deficiency will be absorbed by the other partners.

• (S)he can apply the right of offset.

• (S)he will make additional cash investment.

• The partnership will pay for his/her capital deficiency.

Which is the right order of liquidation process?

• asset realization, payment of liabilities, cash distribution to partners

• payment of liabilities, cash distribution to partners, asset realization

• asset realization, cash distribution to partners, payment of liabilities

• payment of liabilities, asset realization, cash distribution to partners