How Is the Allocation of Partnership Profits Affected by Drawings

question 56

Multiple Choice

How is the allocation of partnership profits affected by drawings?

• A) Drawings must be deducted from partners' salaries.
• B) Drawings must be added back to profits before they are allocated.
• C) Drawings must be deducted from profits before they are allocated.
• D) Drawings only affect profit allocation if the partnership agreement provides for interest on drawings.

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Definitions:

Flotation Costs

The costs associated with issuing new securities, including underwriting fees, legal fees, and registration fees.

After-Tax Cash Inflows

After-tax cash inflows represent the net cash a company receives from its operations, investments, or financial activities, after all taxes have been deducted.

Flotation Cost

The total costs a company incurs when it issues new securities, including underwriting fees, legal fees, and registration fees.

Debt-Equity Ratio

Debt-equity ratio is a financial ratio indicating the relative proportion of shareholders’ equity and debt used to finance a company’s assets.