Jaden and Noel Are Starting a Computer Repair Business Together

question 64

Multiple Choice

Jaden and Noel are starting a computer repair business together.Jaden insists on outlining rules for the departure of partners in the partnership agreement,although Noel does not think it is necessary.Which of the following statements might Jaden use to explain his insistence to Noel?

• A) Provisions to remove a partner's ownership interest are necessary so the business would not have to end.
• B) Determining the allocation of profits to new, junior partners is important to eliminate future potential conflicts.
• C) Responsibilities must be clearly delineated to avoid the possibility of one partner overstepping his or her bounds.
• D) As the partnership matures and ages, defining how profits and losses will be distributed must be made.
• E) In a partnership of two, where the possibility of a deadlock is likely, we should provide for a trusted associate to act as an acting third "partner" whose sole responsibility is to be the tiebreaker.

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Definitions:

EBIT

Earnings Before Interest and Taxes, a financial metric used to evaluate a company's operating performance.

Free Cash Flow

The cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Capital Expenditures

Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment to boost its long-term revenue.

Depreciation

The accounting method of allocating the cost of a physical or tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.