In the liquidation of a general partnership, indicate the proper order of payment of partnership liabilities and equity.

• A. I, II, IV, III
• B. I, II, III, IV
• C. II, I, III, IV
• D. II, I, IV, III

Answer: (B)

In liquidation, payments follow a waterfall: first you satisfy all outside liabilities to creditors, then you address any claims from partners who lent money to the partnership, next you return the partners’ contributed capital, and finally you distribute any remaining assets as profits according to the partnership agreement. This sequence protects creditors’ rights before equity interests are settled.

The correct order matches paying outside creditors first, then partner loans, then returning contributed capital, and finally distributing profits. This is why the option reflecting I, II, III, IV aligns with the proper hierarchy.