When a partnership is insolvent and a partner has a deficit capital account balance, that partner is legally required to: Multiple Choice Declare personal bankruptcy. Initiate legal proceedings against the partnership. Contribute cash to the partnership. Deliver a note payable to the partnership with specific payment terms. None of these answer choices are correct. The partner has no legal responsibility to cover the capital deficit balance.

Question

Lilah

Business

27 September, 09:34

When a partnership is insolvent and a partner has a deficit capital account balance, that partner is legally required to: Multiple Choice Declare personal bankruptcy. Initiate legal proceedings against the partnership. Contribute cash to the partnership. Deliver a note payable to the partnership with specific payment terms. None of these answer choices are correct. The partner has no legal responsibility to cover the capital deficit balance.

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Answers (1)

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Ciara Barber · Answer 1

Contribute cash to the partnership.

Explanation:

Generally each partner in the partnership has capital balances represented as credit balances.

Capital balances do not have debit balances, if a partner has deficit balance, it means he has less than the balance as required for his share to be maintained.

Further if the partnership is declared insolvent, for any reason, the partner having deficit balance shall first bring in cash to add balance to his account, and remove the deficiency in his account.

Therefore, the correct option is

Contribute cash to the partnership.