Final answer:
The correct answer is option C, according to the final capital account balances.
Step-by-step explanation:
The final distribution of partnership cash when a partnership is liquidated is made according to the final capital account balances.
When a partnership is liquidated, the final distribution of partnership cash is made based on the partners' capital account balances. The capital account represents the partners' ownership interest in the partnership, which is determined by the initial investment made by each partner and any subsequent changes in their capital due to profits, losses, or additional investments.
For example, let's say a partnership has three partners: Partner A invested $50,000, Partner B invested $30,000, and Partner C invested $20,000. After the partnership has been liquidated, if Partner A's capital account balance is $100,000, Partner B's capital account balance is $80,000, and Partner C's capital account balance is $60,000, the final distribution of the partnership cash would be made in proportion to these capital account balances.
When a partnership is liquidated, the final distribution of cash to the partners is made based on the remaining amounts in their capital accounts after all the assets are sold and liabilities are paid off. This method ensures that each partner receives a distribution that reflects the true economic value of their interest in the partnership after all debts and prior obligations have been settled. It is the fairest method because it takes into account any profits or losses generated by the partnership during its operation, as well as any additional contributions or withdrawals made by the partners over time.