If a Partnership Contract Provides for Interest at 10% Annually

question 14

Multiple Choice

If a partnership contract provides for interest at 10% annually on each partner's investment, the interest:

• A) Is an expense of the business.
• B) Is ignored when earnings are not sufficient to pay interest.
• C) Legally becomes a liability of the partnership.
• D) Must be paid in cash.
• E) Provides for the sharing of a portion of the partnership earnings in the capital ratio.

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Definitions:

Average Cost Method

An inventory costing method where the cost of goods sold and ending inventory is determined by averaging the cost of all similar items available.

FIFO

An inventory valuation method that assumes the first items placed into inventory are the first sold, standing for "First In, First Out."

LIFO

Last In, First Out, an inventory valuation method where the goods purchased last are the first to be sold.

Safeguarding Inventory

Measures and controls put in place to protect a company's inventory from loss, theft, or damage.