Under general circumstances, debt is allocated from the partnership to each partner in the following manner:
A)Recourse-profit-sharing ratios; nonrecourse-profit-sharing ratios.
B)Recourse-capital ratios; nonrecourse-capital ratios.
C)Recourse-to partners with the ultimate responsibility for paying the debt; nonrecourse-profit-sharing ratios.
D)Recourse-profit-sharing ratios; nonrecourse-to partners with the ultimate responsibility for paying the debt.

Question

Quizplus · Accepted Answer

Recourse debt is allocated to the partners who have the ultimate responsibility for paying the debt, reflecting the economic reality that these partners will bear the cost if the partnership defaults. Nonrecourse debt, which the lender cannot pursue beyond the collateral, is allocated based on profit-sharing ratios, as all partners benefit from the use of the borrowed funds in generating profits.

Under General Circumstances, Debt Is Allocated from the Partnership to Each