Question

In: Accounting

Which of the following statements is true of​ partnerships? If the partners have no partnership agreement specifying...

Which of the following statements is true of​ partnerships?

If the partners have no partnership agreement specifying how to divide profits and​ losses, then they share profits and losses equally.

B.

The profit sharing is always based on each​ partner's capital balances and any losses will be shared equally.

C.

It is legally required to share the profit and losses​ equally, irrespective of the partnership agreement.

D.

The stated ratio of profit sharing needs to be approved by the SEC.

Solutions

Expert Solution

Correct option is (A)

If the partners have no partnership agreement specifying how to divide profits and​ losses, then they share profits and losses equally.

When partners have not made any partnership agreement or they have made a partnership agreement but the partnership agreement does not contain any provision regarding sharing of profits, in that case profits are shared equally among all the partners, ignoring the capital contributions by the partners.

Statements B, C and are not correct.

The profit sharing is always based on each​ partner's capital balances and any losses will be shared equally.- It is false since it is possible only when provided in the partnership agreement. Thus this is not always true.

It is legally required to share the profit and losses​ equally, irrespective of the partnership agreement.- It is false since there is no legal provision to share profits equally.

The stated ratio of profit sharing needs to be approved by the SEC- It is false since SEC has nothing to do with the approval of profit sharing ratio of partners.

ekkarill92 answered 11 months ago
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