Question

Coffee Partners decides to close due to the increased competition from the national chains. If after liquidating the noncash assets there is not enough cash to cover accounts payable, what happens?

a) Partners contribute personal funds
b) Creditors absorb the loss
c) Remaining assets are sold
d) Liquidation is halted

Answer 1

If Coffee Partners does not have enough cash from asset liquidation to cover accounts payable, typically creditors absorb the loss (option b) . Partners are not required to contribute personal funds unless they have personally guaranteed the debts.

Step-by-step explanation:

If Coffee Partners must close due to increased competition and there is not enough cash from liquidating noncash assets to cover accounts payable, the typical outcome is that creditors absorb the loss. In such a scenario, the partners are not usually obligated to contribute personal funds, unless they have given personal guarantees for the business debts.



When all company assets are sold and there are insufficient funds to pay back all creditors, this results in a partial repayment where creditors receive only a portion of what is owed to them, and they must write off the remainder. The decision to halt the liquidation would not be applicable; once all assets are liquidated, the process is complete. The partners generally do not have to sell personal assets to cover business debts, especially in a limited liability company structure.