Asked by Ethan Scofield on May 05, 2024
Verified
The most appropriate basis for dividing partnership net income when the partners do not plan to take an active role in daily operations is
A) on a fixed ratio.
B) interest on capital balances and salaries to the partners.
C) on a ratio based on average capital balances.
D) salaries to the partners and the remainder on a fixed ratio.
Fixed Ratio
A financial metric that reflects the consistency of a company's financial performance by comparing various fixed costs to its total expenses.
Interest On Capital
The return on investment that is required or anticipated for the money or capital invested in a business or project.
- Analyze the significance of partnership agreements in the apportionment of income, taking into account the distribution of net profit among partners as per agreed ratios, salaries, and interest allocations on capital.
Verified Answer
ZS
Zelia SantosMay 07, 2024
Final Answer :
C
Explanation :
When partners do not plan to take an active role in daily operations, dividing partnership net income based on average capital balances is most appropriate. This method rewards the partners for their investment in the partnership, rather than their daily involvement or specific contributions.
Learning Objectives
- Analyze the significance of partnership agreements in the apportionment of income, taking into account the distribution of net profit among partners as per agreed ratios, salaries, and interest allocations on capital.
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