Alex and Bailey Opened a Dance Studio Together as General

question 93

Multiple Choice

Alex and Bailey opened a dance studio together as general partners.They each invested $10,000 of their personal savings.After one year in business,they decided to close the doors.Their partnership agreement said they would divide profits and losses 50/50.They have more debt than assets.Alex and Bailey will each ________.

• A) lose only $10,000, the amount they invested since they agreed to share profits and losses 50/50
• B) lose only $5,000, half the amount they invested, since they agreed to share profits and losses 50/50
• C) collect the debt from their former customers since the customers accepted responsibility for the business when they purchased services
• D) avoid any liability for the debt since a partnership is considered to be a separate entity from the partners who own it
• E) lose personal assets to repay the debt since a partnership is not considered to be a separate entity from the partners who own it

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Definitions:

Depreciation

Allocating the expense of a tangible asset over the period of its use, taking into account its deterioration or outdating.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating the liquidity and short-term financial health of the business.

Fixed Assets

Enduring assets of a tangible nature employed in business activities, not intended to be liquidated or depleted over the course of a year.

EBIT

This earnings measure, known as Earnings Before Interest and Taxes, tallies a company's profit while omitting costs associated with interest and taxes.