Question

X,Y and Z are equal partner’s in the XYZ partnership and share profits and losses accordingly At the end of 20X1 the partnership’s capital accounts reflect the following numbers due to a special allocation of depreciation X capital $40,000, Y capital($10,000) Z capital ($20,000) If all the assets are sold for $10,000, which of the following is true? A)X shares in Y and Z’s contribution B)X takes Y and Z’s entire contribution C) Y contributes nothing D)Y shares in Z’s capital contribution

Answer 1

After special allocation, the capital balance of Y and Z becomes negative. so Y and Z must contribute an additional deficit balance of $ 10000 &$ 20000 respectively so that X can receive his full share of 40000 as distributed capital.

so correct option is "b"-X takes Y and Z's entire contribution

Since the capital balance of X is 40000 so he will entitle to take the whole contribution by Y and Z.

Therefore the correct choice is:

X takes Y and Z's entire contribution