Game 4: Liquidation of Partnership
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Liquidation, Settlement or Winding Up of Partnership True or False Statements
Topics of this game:
- The use of a safe payments schedule and cash priority program are alternatives which will yield the same ultimate cash distributions to the partners.
- The entry to record the exercise of "right to offset" will debit the partner's loan account and credit cash on the books of Partnership.
- The loss absorption balances represent the maximum loss that the partners could absorb without reducing their equity below zero.
- A partner's restricted interest represents the portion of a partner's interest which should remain available to absorb possible future losses.
- 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.
- 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.
- A partner's "free equity interest" represents the portion of a partner's interest which should remain available to absorb possible future losses.
- Restricted interests are provided for assumed non-sale of remaining non-cash assets and for assumed insolvency of deficient partners.
