When a Partnership Is Liquidated, the Assets Are Sold and the Cash

question 46

Multiple Choice

When a partnership is liquidated, the assets are sold and the cash realized is applied first to the:

• A) claims of creditors.
• B) partner with the largest investment.
• C) partners' equity accounts.
• D) partners according to their ownership interests.

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Definitions:

Times Interest Earned

A financial ratio that measures a company's ability to meet its interest payments from its earnings before interest and taxes.

Interest Expense

The cost incurred by an entity for borrowed funds, typically expressed as an annual rate.

Quick Assets

Liquid assets that can be rapidly converted into cash, excluding inventory, such as cash, marketable securities, and receivables.

Leverage

The use of borrowed capital or financial instruments to increase the potential return of an investment or project.