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Unformatted text preview: difference between book value and the cash proceeds is called the gain or loss on realization . To liquidate a partnership, it is necessary to: 1. Sell noncash assets for cash and recognize a gain or loss on realization. 2. Allocate gain/loss on realization to the partners based on their income ratios. 3. Pay partnership liabilities in cash. 4. Distribute remaining cash to partners on the basis of their capital balances . Each of the steps must be performed in sequence. Creditors must be paid before partners receive any cash distributions. Each step also must be recorded by an accounting entry. When a partnership is liquidated, all partners may have credit balances in their capital accounts. This situation is called no capital deficiency . Or, at least one partner’s capital account may have a debit balance. This situation is termed a capital deficiency ....
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 201 taught by Professor - during the Spring '11 term at Montgomery.
- Spring '11