David, Ed, and Fred Are Partners in the DEF Partnership

question 27

Multiple Choice

David, Ed, and Fred are partners in the DEF partnership. The partnership is being dissolved, having $200,000 in assets and owing $410,000 to creditors. David contributed $100,000 in capital; Ed contributed $50,000 in capital; and Fred contributed $25,000 in capital. Profits are shared equally. Which of the following is correct with regard to the responsibility of each partner?

• A) The partners will bear losses equally.
• B) The partners will bear losses in the proportion of their relative capital contributions.
• C) If Ed refuses to contribute to covering the loss and he is out of the jurisdiction, David and Fred must contribute the additional amount necessary to pay DEF's liabilities in the relative proportion of their capital contributions.
• D) Any of these could be true, depending on the partnership agreement.

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Definitions:

Expenses

Outflows or other uses of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations.

Formal Account

An organized financial record of transactions over a period for an individual, company, or entity, maintained in a structured format.

Standard Account Form

A uniform format for presenting accounting information, typically including assets, liabilities, and equity sections.

Ledger

A book or digital record used to track all financial transactions and balances for a company's accounts.