Sometimes the Partnership Agreement May Specify That Interest Is to Be

question 23

Multiple Choice

Sometimes the partnership agreement may specify that interest is to be charged on partner's drawings. Which of the following is the main reason for such a charge?

• A) To reduce partnership profits.
• B) To act as a disincentive to partners withdrawing excessive amounts from the partnership.
• C) To increase the income of the partnership.
• D) To encourage partner's to draw extra amounts.

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Definitions:

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset since it was acquired.

Condensed Income Statement

A simplified version of an income statement that presents only the essential details, summarizing revenue, expenses, and net income.

Discontinuance

The action of stopping the production or offering of a product or service, often due to strategic business decisions or market conditions.

Total Cost Concept

A concept used in applying the cost-plus approach to product pricing in which all the costs of manufacturing the product plus the selling and administrative expenses are included in the cost amount to which the markup is added.