Which of the Following Best Describes the Use of Interest

question 12

Multiple Choice

Which of the following best describes the use of interest on invested capital as a means of allocating profits?

• A) If interest on invested capital is used, it must be used for all partners.
• B) Interest is allocated only if there is partnership net profit.
• C) Invested capital balances are never affected by drawings of the partnerships.
• D) Use of beginning or ending measures of invested capital may be subject to manipulation that distorts the measure of invested capital.

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Definitions:

Temporary Investment

Short-term investments made by a company to earn a return on idle cash without impacting its liquidity.

Long-Term Investment

Investments held for an extended period, usually more than one year, with the intention of gaining significant returns over time.

Dividends Received

Income earned from investments in the form of payments distributed by a corporation to its shareholders.

Minority Interest

The portion of subsidiary companies' equity (net assets) that is not owned by the parent company; represents the outside shareholders' percentage of ownership in the subsidiary.