Nonrecourse debt is generally allocated according to the profit-sharing ratios of the partnership.

Question

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Nonrecourse debt is allocated according to the profit-sharing ratios of the partnership because it is a type of debt in which the lender is only entitled to the collateral in the event of default, and cannot pursue the partners' personal assets. Thus, the allocation of this debt is based on the partnership's sharing of profits and losses.

Nonrecourse Debt Is Generally Allocated According to the Profit-Sharing Ratios