Multiple Choice
A major distinction between temporary and permanent accounts in the closing entries process is:
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
When does the dissolution of a partnership occur?
A
When the partnership issues new shares of stock
B
When any partner withdraws or a new partner is admitted
C
Only when the partnership's net income is negative
D
Only at the end of the fiscal year during closing entries
Verified step by step guidance1
Understand the concept of partnership dissolution: In financial accounting, the dissolution of a partnership refers to the process where the existing partnership agreement is terminated due to changes in the partnership structure.
Identify the key triggers for dissolution: A partnership is dissolved when there is a significant change in the composition of partners, such as when a partner withdraws or a new partner is admitted. This alters the original agreement and requires a new arrangement.
Clarify misconceptions: Dissolution does not occur due to issuing shares of stock, as partnerships do not issue stock. It also does not depend solely on the partnership's net income being negative or the fiscal year-end closing entries.
Relate to accounting procedures: Upon dissolution, the partnership's accounts are adjusted to reflect the changes in ownership. This may involve revaluation of assets, settlement of liabilities, and distribution of remaining equity among partners.
Summarize the correct answer: The dissolution of a partnership occurs when any partner withdraws or a new partner is admitted, as this fundamentally changes the partnership agreement.
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