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To liquidate a partnership, the process calls for:

1. assets converted into cash to pay business obligations and liquidation expenses 2. remaining assets distributed to partners based on their final capital balances 3. partnership books closed

The liquidation of a partnership becomes complicated if

1. one or more partners have a negative (deficit) capital balance 2. the liquidation takes place over an extended period of time

Deficit balances can be resolved two ways:

1. the deficit can make a contribution to make up the deficit 2. the remaining partners can absorb the deficit (the deficit partner pay later or can be sued for the deficit amount)

Which of the following statements is incorrect regarding a redistribution plan?

a predistribution plan is prepared at the end of a liquidation to confirm actual cash distributions

In accounting for the liquidation of a partnership, cash payments to partners after all creditors' claims have been satisfied, but before final cash distribution, should be according to:

Safe payment computations

Pre distribution plan

Whenever cash becomes available, the plan indicates the appropriate recipients without drawing up ever changing proposed schedules of liquidation. The plan is developed by simulating a series of losses, each of which is just large enough to eliminate, one at a time, all of the partners' claims to partnership property.

Uniform Partnership Act

a priority ranking of creditors having claims against individual partners is recognized: 1. debts owed to partnership creditors 2. debts owed to personal creditors 3. debts owed to other partners

In a partnership liquidation, how is the final allocation of business assets made to the partners?

according to the balances of the partners' loan and capital accounts

All partnership creditors must be satisfied first. The creditors can only assert claims to the extent of the specific partner's positive capital balance. Each partner is liable for ALL the debts of the partnership. Partners are NEVER liable for the personal debts of the other partners.

Claims against the partnership

1. Non‐cash partnership assets are sold for cash, and gains and loss on the sales are allocated to the capital accounts of individual partners on the basis of their profit and loss ratios. 2. Partnership liabilities and expenses incurred during the liquidation are paid out of the partnership's available cash. 3. Any partnership cash remaining after paying liabilities and liquidation expenses is distributed to the individual partners on the basis of their respective capital balances.

Liquidation of a partnership

Stanley, a partner of the Newtown partnership, made a loan to the partnership. The partnership is now in liquidation. Which one of the following statements is incorrect regarding the status of this loan during the liquidation process?

The loan must be repaid before any cash distribution is made to the other partners, even if Stanley does not have a sufficient amount of capital to absorb all possible losses.

A partnership is liquidating and one of the partner's capital accounts has a deficit balance. What should happen?

The partner with the deficit should contribute enough personal assets to eliminate the deficit balance.

A guideline for the cash distributions to be made to the partners during a liquidation is called

Predistribution plan