QUESTION AND ANSWER

Identification:

1. A legal business structure consisting of an association of two or more people who contribute money,
property, or services to operate as co-owners of a business. (Partnership)
2. Closing down of a partnership for economic, personal, or other reasons that may be unique to the
particular partnership. (Dissolution)
3. Involves a change in the relation of partnership business, if the remaining partners resolve to continue
the concern. (Dissolution of Partnership)
4. The dissolution of partnership among all the partners of a firm. (Dissolution of the Firm)
5. A process of selling off non-cash assets. (Liquidation)
6. The sale of noncash assets for cash. (Realization)

Multiple Choice:

1. The owners of a partnership are called ___________.

a) Partners
b) Shareholders
c) Proprietor

2. When a partnership dissolves, the first step in the dissolution process is to ________.
a) Allocate the gain or loss on sale based on income sharing ratio
b) Pay off liabilities
c) Sell noncash assets
d) Divide the remaining cash among the partners

3. When a partnership dissolves, the last step in the dissolution process is to ________.
a) Allocate the gain or loss on sale based on income sharing ratio
b) Pay off liabilities
c) Sell noncash assets
d) Divide the remaining cash among the partners

4. Prior to proceeding with the liquidation, the partnership should ________.

a) Prepare adjusting entries without closing
b) Complete the accounting cycle for final operational period
c) Prepare only closing entries
d) Complete financial statements only

5. The dissolution of partnership may take place in any of the following ways:
a) In accordance with a contract between the partners
b) When the business of the firm becomes illegal
c) Insolvency of a partner
d) When the business of the firm cannot be carried on except at a loss

True or False:

1. Partner negligence is one of the reason when a partnership ceases operation. (True)
2. In order to record the personal withdrawal, the partner’s withdrawal account is credited and cash
account is debited by the amount of cash withdrawal. (False – withdrawal account is debited and cash
account is credited)
3. When a partnership liquidates, partners get paid first. (False - Partnerships must pay creditors prior to
distributing funds to partners)
4. Whenever there is a change in partners for any reason, the partnership must be dissolved and a new
agreement must be reached. (True)
5. A partnership may be dissolved and end business operations. (False - A partnership may be dissolved,
but that may not end business operations.)
6. In most dissolutions of a partnership, the business partners need to decide what will happen to the
partnership itself. (True)
7. The one change upon dissolution is that “each partner’s duty not to compete ends when the partnership
dissolves.” (True)
8. Once the partnership has been dissolved, the departing partners still have an obligation to their old
business partners. (False - the departing partners no longer have an obligation to their old business
partners.)
9. Dissolution of Partnership changes the existing relationship between partners but the firm may continue
its business as before. (True)
10. Firm’s dissolution implies partnership dissolution and vice versa. (False - Firm’s dissolution implies
partnership dissolution but not vice versa.)
11. Dissolution of a partnership is different from dissolution of a firm. (True)
12. A partnership is dissolved when there is a death of a partner. (True)
13. A firm is dissolved when all partners give consent to it. (True)
14. A firm is compulsorily dissolved when a partner decide to retire. (False – partnership can be dissolved
when a partner decide to retire)
15. Dissolution of a firm necessarily involves dissolution of partnership. (True)
16. A firm is compulsorily dissolved when all partners or when all except one partner become insolvent.
(True)
17. Court can order a firm to be dissolved when a partner becomes insane. (True)
18. Dissolution of partnership cannot take place without intervention of the court. (False - Dissolution of a
partnership firm may take place without the intervention of court or by the order of a court)