PARTNERSHIP LIQUIDATION

I. MODIFIED TRUE OR FALSE. Write True if the statement is correct. Otherwise, explain why it is wrong.

1. The creditors of the partnership shall have priority in payments over those of the partners' separate creditors as regards the partnership properties. 2. The loss absorption balances represent the maximum loss that the partners could absorb without reducing their equity below zero. 3. Gains and losses on the sale of assets in liquidation are divided equally among partners. 4. A partnership may be dissolved without being liquidated but liquidation is always preceded by dissolution. 5. A partner's inability to meet his obligations at the time of liquidation relieves that individual of his liabilities to the other partners. 6. A partner's unrestricted interest represents the portion of a partner's interest which should remain available to absorb possible future losses. 7. In partnership liquidation, one partner may have to make up for the deficit in another partner's account. 8. When a partnership goes out of business, all the remaining non-cash assets will be declared as a total loss. This loss on liquidation shall be divided among the partners in their profit and loss ratio. 9. Liquidation of a partnership is the winding up of its business activities characterized by sale of all non-cash assets, settlement of all liabilities and distribution of the remaining cash to the partners. 10. Partnership creditors shall have priority in payments than those of the partners' separate creditors as regards the separate properties of the partners. 11. When cash is insufficient to fully satisfy the cash requirements in a particular priority, then the available cash will be distributed using the Profit and loss ratio. 12. The entry to record the exercise of offset will debit the Partner's loan account and credit cash. 13. A partnership is said to be dissolved when the business is terminated. 14. Under the installment method of partnership liquidation, realization of non-cash assets is accomplished over an extended period of time. When cash is available, creditors may be partially or fully paid. Any excess may be distributed to the partners in accordance with a program of safe payments or a cash priority program. This process persists until all the non-cash assets are sold. 15. Restricted interests are provided for assumed non-sale of remaining non-cash assets and for assumed insolvency of deficient partners. 16. The creditors of each partner shall be preferred to those of the partnership as regards the partnership property. 17. Liquidation of a partnership is the process of ending the business. 18. The cash settlement of all liabilities is referred to as realization. 19. In liquidation, partners are given back the assets that they originally invested. 20. Cash payments may be made in the profit and loss ratio only when installment payments have caused the ratio of the partners' capital account balances to be the same as the profit and loss ratio. 21. Partnership creditors will be prioritized next to the inside creditors as to partnership assets in case of liquidation. 22. A partner's interest can be obtained by simply adding the partner's capital account, loans to and from the partnership. 23. If liquidation of a partnership results in a negative balance in a partner's account, the partner must pay into the partnership the amount of the negative balance. 24. The use of safe payments schedule and cash priority program are alternatives which will yield the same ultimate cash distributions to the partners. 25. Partnership liquidation is the same as partnership dissolution. 26. The creditors of the partnership are preferred with respect to the separate or personal properties of the partners. 27. The right of offset is the legal right of a partner to apply part or all of his loan account balance against a capital deficiency resulting from losses in the realization of the partnership assets. 28. Liquidation expenses which are incurred in the realization of non-cash assets affect cash but not partners capital. 29. The use of schedule of safe payments and cash priority program are methods that will yield at the same amount of distributed cash to the partners. 30. The partnership is said to be dissolved when business is terminated.