The computation of a safe installment payment for the XYZ partnership resulted in only partner Z receiving cash. Which of the following statements is correct? I. Partner Z lent the partnership cash, and the partnership had to pay back the loan to Z before distributing cash to X and Y. II. After assuming all noncash assets were potentially worthless and that assumed capital deficits created in X\'s and Y\'s capital balances were losses to be allocated to Z; Z\'s capital balance was the only capital balance left with a credit. (Points : 1) I only II only Either I or II Neither I nor II
Solution
The answer for the above question would be:
II only (Z before distributing cash to X and Y. II. After assuming all noncash assets were potentially worthless and that assumed capital deficits created in X\'s and Y\'s capital balances were losses to be allocated to Z; Z\'s capital balance was the only capital balance left with a credit ).
Explanation for the Answer is provided below:
Under safe installment payment system, cash is paid to the partner, who still has excess credit in his account at the time of liquidation. Here, Z received all the cash, which means that the amount of capital deficit in X and Y can be allocated to Z. In other words, the amount of deficit in the capital accounts of X and Y will be borne by Z.
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The computation of a safe installment payment for the XYZ partnership.docx
1. The computation of a safe installment payment for the XYZ partnership resulted in only partner
Z receiving cash. Which of the following statements is correct? I. Partner Z lent the partnership
cash, and the partnership had to pay back the loan to Z before distributing cash to X and Y. II.
After assuming all noncash assets were potentially worthless and that assumed capital deficits
created in X's and Y's capital balances were losses to be allocated to Z; Z's capital balance was
the only capital balance left with a credit. (Points : 1) I only II only Either I or II Neither I nor II
Solution
The answer for the above question would be:
II only (Z before distributing cash to X and Y. II. After assuming all noncash assets were
potentially worthless and that assumed capital deficits created in X's and Y's capital
balances were losses to be allocated to Z; Z's capital balance was the only capital balance
left with a credit ).
Explanation for the Answer is provided below:
Under safe installment payment system, cash is paid to the partner, who still has excess credit in
his account at the time of liquidation. Here, Z received all the cash, which means that the amount
of capital deficit in X and Y can be allocated to Z. In other words, the amount of deficit in the
capital accounts of X and Y will be borne by Z.
