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.

Question

Quizplus · Accepted Answer

If only partner Z received cash, it means that the partnership did not have enough cash to distribute to all partners. This could be due to several reasons, such as the partnership having low profits or high expenses. In this case, it is possible that partner Z lent money to the partnership, which they had to pay back to him before distributing cash to the other partners. Also, 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, it resulted in Z's capital balance being the only capital balance left with a credit. Therefore, statement II is correct.

The Computation of a Safe Installment Payment for the XYZ