X and Y are equal partners in the XY Partnership and share profits and losses ac

Question

X and Y are equal partners in the XY 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: Capital X Capital Y ($20,000) $60,000 All the assets are sold for $40,000. How will the liquidation affect X if the special allocation is to be respected? A. X contributes $20,000 and receives $30,000. B. X contributes $20,000 and receives nothing. C. X contributes nothing. D. X receives nothing.

Explanation / Answer

profit on liquidation of X = 40000/2 = 20000

X's net receipt = capital+profit

-20000+20000

= 0

Answer (D) X receive nothing

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