1. C is owed $100,000 by the equal AB partnership. Cs note indicates that the interest rate will vary depending on the performance of the partnership, and the note can be rolled over indefinitely as long as the partnership wishes it to be rolled over. The note is subordinated to any other liabilities of the partnership, except that it is secured by property with a current value of $120,000. A and Bs capital accounts total $2,000, and the terms of the note allow C to have a say in certain business decisions of the partnership. The partnership is in the real estate rental business, and its properties are rented virtually 100% of the time. At the current time, Cs debt is the only debt the partnership has. What factors indicate that the note is debt, and what indicate that it is equity? Which should it be classified as?

2.

The equal AB partnership had $100,000 of recourse liabilities. At the end of a hypothetical constructive liquidation, partner A would be obligated to pay $100,000, and B would be obligated to pay nothing. Because of the nature of As obligation, B had to guarantee to pay it if A could not. How much of the partnership liabilities should each partner be allocated?