If a partnership contract provides for interest at 10% annually on each partner's investment, the interest:
A) Is an expense of the business.
B) Is ignored when earnings are not sufficient to pay interest.
C) Legally becomes a liability of the partnership.
D) Must be paid in cash.
E) Provides for the sharing of a portion of the partnership earnings in the capital ratio.

Question

Quizplus · Accepted Answer

Interest on partners' investments is a form of profit-sharing, not an expense.

If a Partnership Contract Provides for Interest at 10% Annually