How Is the Allocation of Partnership Profits Affected by Drawings

question 14

Multiple Choice

How is the allocation of partnership profits affected by drawings?

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

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Definitions:

Zero Coupon Bond

A bond that is issued at a discount to its face value and pays no interest but is redeemed at its face value at maturity.

Required Return

Required return is the minimum expected yield by investors to compensate for the risk of an investment.

Semiannual Compounding

Interest calculation method where interest is added to the principal sum of a loan or deposit twice a year.

Forward Rate

An agreed-upon price for a financial transaction that will occur at a future date.