Bob and Fred Form a Partnership and Agree to Share

question 7

Multiple Choice

Bob and Fred form a partnership and agree to share profits in a 2 to 1 ratio. During the first year of operation, the partnership incurs a $20,000 loss. The partners should share the losses:

• A) based on their average capital balances.
• B) in a 2 to 1 ratio.
• C) equally.
• D) based on their ending capital balances.

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Definitions:

Non Est Factum

Non est factum is a legal defense in contract law that asserts a signed agreement is void because the signer was mistaken about its nature and character.

Negligence

A failure to act with the care that a reasonably prudent person would exercise under the same circumstances, often leading to liability for resulting damages.

Privity of Contract

The principle that a contract confers rights and imposes liabilities only on its parties; no outsider can gain rights or be liable under it.

Novation

The process of replacing an existing obligation with a new one, substituting a party or terms in a contract with the consent of all parties involved.