 In this presentation, we will take a look at multiple choice questions related to partnerships. First question. When a partner is added, a. the previous partnership ends, b. business operations end, c. the partnership continues, d. the partnership has a party, e. the partnership equity always increases. Okay, so let's go through this and use the process of elimination. When a partnership is added, a. the previous partnership ends. So I'll keep that for now. That has to do with the idea of the limited life of a partnership. So if the partnership significantly changes, of course, with the adding and subtraction of partners, and so how do we deal with that in terms of the limited life of a partnership? So b says operations end, and that's not typically the case. I mean, the point is that we want to continue operations on the partnership with a new partner. So I'm going to say that's probably not it. And c says the partnership continues. And that's basically the opposite of a here. So we'll keep that. It might be one of those two considering these are opposites now. So if we have seen those two answers, we might say, hmm, one of those might be the correct answer because they seem to be contradicting each other. And then d says the partnership has a party, which they may well do, but it's not necessary. It's not something that's going to be some kind of legal requirement. And then e says the partnership equity always increases. So when a new partnership is added, it's not necessarily the case that the equity will always increase because the partner might, they could go into the partnership multiple different ways. They could put money into the partnership, but they could also buy a partnership agreement from a partner. And in that case, they wouldn't be putting any new, they may not be putting any money into the partnership itself. They might just be buying some equity from an existing partner. So it's not the case that you might think it would be the case that the partners equity always goes up, but it's not necessarily the case. And the key term here is always. So whenever you see an answer that says always, then that's usually a term that will cancel that answer out because always means that all you got to have is one gaze where that doesn't happen. And then it's no more good. So watch out for that word. I would say that eliminates a lot of answers when you see that term. Plus these two seem to be opposites from each other. So we're probably down to A and C because of that. So if we go through this again, we're going to say when a partnership is when a partner is added, either A or C, either the previous partnership ends or the partnership continues. And this seems counterintuitive, but it's actually a the partnership will end. And that seems kind of odd because you are going to be is correct. We are going to continue operations as a partnership. But note that anytime you have a significant change in a general partnership, that's kind of the issue with a partnership. It's got a limited life. So if someone leaves or someone dies or someone new comes in, what you're really doing is kind of a closing the original partnership and then setting up a new partnership. So it's kind of like it's kind of like nothing really happened. I mean, it's kind of like you're just you're continuing the partnership, but you typically might have to go through the whole revaluation process in order to add the new partner. You might have to say, okay, let's revalue all of our assets and our liabilities and make sure they're on the books at the correct amount and then add the new partner and make sure that all of our, you know, that we put the new partner on the books at the proper amount. And then you basically have in doing that you've reshuffle, you know, you've kind of reset the books oftentimes in terms of the new, the proper capital accounts or the updated capital accounts to a more of a current fair market value. So in any case, partnership because of that limited life, anytime a partner leaves or comes in, oftentimes you'll have this termination of the partnership and then basically the creation of a new partnership doing in essence the same thing. Next question, when a partner is unable to pay a capital deficiency, A, the partner must take out a loan, B, the deficiency is allocated to the remaining partners decreasing their capital accounts. C, the partnership ends and not cash is distributed. Okay. D says the deficient partner is relieved of the liability. And E says the partnership is, the partnership cannot close. So let's go through this process of elimination. When a partner is unable to pay a capital deficiency, either A, the partner must take out a loan. Well, that seems kind of reasonable. And that means that the partnership within the liquidation process, often this happens, the capital account becomes negative. And that means kind of like the partner owes the partnership money, which isn't typically the case. Typically the case would be that the partnership owes the owner. And this could happen if we allocate a loss, if the business has a loss, then it could happen that a partner goes negative on their capital account. And if you're going to liquidate, then the question is, well, what are we going to do with this negative capital account? I mean, the partner should pay back the negative capital account in order for us to liquidate. So what happens if they can't do it? Do we force them to take out a loan? And then B says the deficiency is allocated to the remaining partners decreasing their capital accounts. So that's the other option we can have if they don't take out a loan. And then C says the partnership ends and I think that should be no cash is distributed. Well, that doesn't seem, I mean, there's going to be cash in the partnership somewhere, some way, hopefully, after we sell all the assets and pay off all the liabilities. So we got to pay someone, so I would think that's not it. And then D says the deficient partner is relieved of the liability. So again, if the individual has a negative capital account, you wouldn't think they would just automatically be relieved of the liability. You would think they would owe the partnership in some way or owe somebody. So I don't think they would automatically be relieved of the liability because they have a negative. And then E says the partnership cannot close. And that would seem kind of reasonable. You think, well, how can I close the partnership if the partner owes the partnership money and can't pay it because then you can't pay off the remaining partners. So let's keep AB and E go through it again. When a partner is unable to pay a capital deficiency, either AB or E either the partner must take out a loan or the deficiency is allocated to the remaining partners decreasing their capital accounts or the partnership cannot close. Now of these three, note that B, once again, it's going to be a long detailed answer, whereas A and E are kind of shorter, less detailed answers. And if you see an answer that seems to be hedging all the bets seems to be qualifying all consequences that may not be in alignment, then that's more of a legalese type of answer. Maybe the correct answer because they're trying to put an answer in place that covers all the bases. So I would just based on that, I would think, hmm, B sound looks like it's the one that's trying to cover all the bases. A says the partner must take out a loan. Well, you know, it'd be nice if he took out the he or she or whoever took out a loan and paid the partner because of what they owe to the partnership so that we can liquidate the thing if the liquidation process. But it may not happen, right? That may not be the solution. That may be one solution, but not the only solution. And E says the partnership cannot close. And again, we have to, you know, if someone won't pay the partnership, we've got to move forward somehow. Either we get to have him take out a loan or something happens, we're going to have to move forward to close the partnership because we don't want to just sit on the money and not allocate the money out. So the partnership is going to, we can still move forward if we want to. And so B is how we can do that. And that's going to be the answer. So question and answer, final answer. When a partner is unable to pay a capital deficiency, B, the deficiency is allocated to the remaining partners in decreasing their capital accounts.