Final answer:
In the case of an insolvent liquidating limited liability partnership, option B) Total liabilities exceed total partners' capital is correct. It indicates a financial situation where the debts of the partnership surpass the capital contributed by the partners, leading to insolvency.
Step-by-step explanation:
If a liquidating limited liability partnership is insolvent, it means that the company's financial obligations exceed its assets. The correct choice in this scenario is: B) Total liabilities exceed total partners' capital. This condition indicates that even after the partnership's assets are liquidated, or turned into cash, there will not be enough funds to pay off all liabilities. As a result, the partners' capital accounts are negative, depicting a deficiency in covering debts.
When a partnership experiences insolvency, it usually means that its liabilities have surpassed its assets and that it is unable to satisfy its financial obligations. A partnership's partners might be held personally accountable for its obligations if it go bankrupt.
Depending on the partnership agreement and local legislation, the partnership's assets are used to pay debts; if they are insufficient, individual partners' personal assets may be used to cover the remaining balance.