To which credit should T's payment of 4,500 be applied when he owes 5,000 to MACE and 10,000 to MAGIC, and M issues a receipt for his own credit?

To which credit should T's payment of 4,500 be applied when he owes 5,000 to MACE and 10,000 to MAGIC, and M issues a receipt for his own credit?

• A. To M's credit because the payment is intended for his debt to M who issues his own receipt.
• B. To both the partnership credit and M's credit proportionately at P1,500 and P3,000, respectively.
• C. To M's credit because its amount is greater than the partnership credit.
• D. To the partnership credit because the managing partner should not prefer his own interest to that of the partnership.

Answer: (B)

When a payment is made that should satisfy multiple joint debts of a partnership, the amount is allocated among those debts in the same ratio as the amounts owed to each creditor. If there is also a personal credit of a partner involved, the payment can be spread proportionally between the partnership credits and the partner’s own credit, based on the relative sizes of the debts. Here, the partnership owes 5,000 to MACE and 10,000 to MAGIC, a total of 15,000. The 4,500 paid should be divided in the same 1:2 ratio: 1,500 goes to the partnership credit (to MACE) and 3,000 goes to MAGIC. Since M issues a receipt for his own credit, the portion corresponding to the partner’s personal credit is part of that same proportional allocation, resulting in 1,500 to the partnership credit and 3,000 to M’s personal credit. This is why the proportional split between partnership credits and M’s credit best matches the payment, totaling 4,500.

When a payment is made that should satisfy multiple joint debts of a partnership, the amount is allocated among those debts in the same ratio as the amounts owed to each creditor. If there is also a personal credit of a partner involved, the payment can be spread proportionally between the partnership credits and the partner’s own credit, based on the relative sizes of the debts.

Here, the partnership owes 5,000 to MACE and 10,000 to MAGIC, a total of 15,000. The 4,500 paid should be divided in the same 1:2 ratio: 1,500 goes to the partnership credit (to MACE) and 3,000 goes to MAGIC. Since M issues a receipt for his own credit, the portion corresponding to the partner’s personal credit is part of that same proportional allocation, resulting in 1,500 to the partnership credit and 3,000 to M’s personal credit. This is why the proportional split between partnership credits and M’s credit best matches the payment, totaling 4,500.