Asked by louis rojas on May 23, 2024
Verified
Which of the following statements is true about a partnership?
A) One capital and one drawing account is used for each partnership.
B) A separate capital account is used to record each partner's investment and that partner's designated share of the earnings.
C) Partnerships are subject to separate business income taxes.
D) The drawing account is closed to retained earnings at the end of the period.
Drawing Account
A separate account used to track the amount of money or assets taken out of a business by its owners for personal use.
Separate Capital Account
An account used in partnerships and sole proprietorships that shows the owner's original investment plus any retained earnings or minus any losses and withdrawals.
Partnerships
A form of business organization in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in a partnership agreement.
- Understand the merits of different business models, such as sole proprietorships, partnerships, and corporations.
Verified Answer
CM
Celestine MbouhMay 24, 2024
Final Answer :
B
Explanation :
Each partner in a partnership has their own capital account that records their initial investment and their designated share of the earnings or losses. The drawing account is used to record withdrawals by the partner and is not closed to retained earnings at the end of the period. Partnerships are not subject to separate business income taxes, as the income is passed through to the individual partners and taxed on their personal income tax returns. Choice A is incorrect because each partner has their own capital account. Choice C is incorrect because partnerships are not subject to separate business income taxes. Choice D is incorrect because the drawing account is not closed to retained earnings.
Learning Objectives
- Understand the merits of different business models, such as sole proprietorships, partnerships, and corporations.