In a partnership liquidation, a. the last journal entry credits the partners' capital accounts for the remaining cash. b. gains and losses on the sale of assets are allocated to the partners on the basis of their current capital accounts. c. creditors should be paid before partners. d. the partners' accounts are settled on the basis of their stated ratios.

Question

Clay Dillon

Business

14 November, 17:54

In a partnership liquidation, a. the last journal entry credits the partners' capital accounts for the remaining cash. b. gains and losses on the sale of assets are allocated to the partners on the basis of their current capital accounts. c. creditors should be paid before partners. d. the partners' accounts are settled on the basis of their stated ratios.

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Answers (1)

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Maria Lamb · Answer 1

Correct answer is C, creditors should be paid before partners

Explanation:

During partnership liquidation, settlement of obligation comes first before distribution of cash to the partners. There two types of creditors, the outside creditors and the partner creditor. The priority as to who shall be paid first is always the outside creditors before partners. After the non-cash asset is sold, or if there is available cash, creditor will be paid first then the partner creditor. Afterwards, the remaining cash will be distributed to partners based on their profit or loss ratio.