In a Partnership Agreement, If the Partners Agreed to an Interest

question 160

Multiple Choice

In a partnership agreement, if the partners agreed to an interest allowance of 10% annually on each partner's investment, the interest allowance:

• A) Is ignored when earnings are not sufficient to pay interest.
• B) Can make up for unequal capital contributions.
• C) Must be paid because the partnership contract has unlimited life.
• D) Legally becomes a liability of the general partner.
• E) Is an expense of the business.

---

Definitions:

Remaining Partners

The members of a partnership who continue with the business after one or more partners have exited or been removed.

Original Capital

The initial amount of money invested in a business by its owners or shareholders to start and operate the enterprise.

Net Loss

The financial condition indicating that a company's total expenses exceed its revenues over a specific period.

Share of Income

This refers to an individual's or entity's portion of income earned by a business or investment, typically expressed as a percentage of total profits.