1. What is the difference between the dissolution of a partnership and the liqui
ID: 2588790 • Letter: 1
Question
1. What is the difference between the dissolution of a partnership and the liquidation o he liquidation of partnership property? 2. Why would the members of a partnership elect to terminate business operations an d liquid noncash assets? 3. Why are liquidation gains and losses usually recorded as direct adjustments to the partners' ca accounts? 4. After liquidating all property and paying partnership obligations, what is the basis for allocating remaining cash among the partners? 5. What is the purpose of a statement of liquidation? What information does it convey to its readers? 6. According to the Uniform Partnership Act, what events should occur if a partner incurs a negative capital balance during the liquidation process? 7. How are safe capital balances computed when preliminary distributions of cash are to be made ina partnership liquidation? 8. How do loans from partners affect the distribution of assets in a partnership liquidation? 9. What is the purpose of a proposed schedule of liquidation, and how is it developed? 10. How is a predistribution plan created for a partnership liquidation?Explanation / Answer
Q1- Dissolution refers to formal death of partnership. A partnership can be dissolved voluntarily or based on court action.
Liquidation of the partnership can be done with or without dissolution. In liquidation, assets and liabilities are settled and remaining cash, if any, is distributed amongst partners. Partnership cease to exist when it is dissolved and assets and liabilties are liquidated. Partnership legal entity remain when it is liqluidated without dissolution. It may be done when legal entity of partnership is to be maintained due to strong brand recognition.
Q 2. This may be done due to death of partner or partners decide to close the partnership amongst themselves voountarily. It may be forced one as well when court approves dissolution based on creditor complaint or other wise.
Q3 Partners are responsible for gains and losses of business based on partnership ratio decided amongst themselves. Due to this, after liquidation, gain or losses adjusted in their capital account and balance, if any in capital account is paid or recovered from them.
Q4 Remianing cash is distributed amongst partners based on existing partnership ratio.
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