Question

Colin, Demi, and Erin agree to be partners in Fajita Pizza, splitting the profits equally. Colin contributes 65 percent of the capital. When Fajita Pizza is dissolved, its liabilities are greater than its assets. In the absence of a contrary agreement, the losses are paid by

a. all of the partners in proportion to their shares of the profits.
b. Colin because he contributed most of the capital.
c. all of the partners in proportion to their capital contributions.
d. Demi and Erin because they contributed the least of the capital.

Answer 1

In a general partnership, the losses are typically paid by all of the partners in proportion to their shares of the profits.

Step-by-step explanation:

In a general partnership, the losses are typically paid by all of the partners in proportion to their shares of the profits. This means that each partner would be responsible for a portion of the losses based on their agreed-upon share of the profits. In this case, even though Colin contributed 65 percent of the capital, the losses would still be divided among all the partners based on their profit shares.

Answer 2

In a general partnership, liabilities like losses are usually shared in the same way as profits, unless there's a specific agreement stating otherwise. As such, Colin, Demi, and Erin would all be responsible for the losses of Fajita Pizza in proportion to their equal profit shares.

Step-by-step explanation:

When Colin, Demi, and Erin formed Fajita Pizza as partners in a general partnership, they agreed to split profits equally. In a general partnership, unless there's a contrary agreement, liabilities such as losses are typically shared in the same proportion as profits. Therefore, the losses would be paid by all of the partners in proportion to their shares of the profits, even if one partner contributed more capital. As such, the correct answer to the question is:

a. all of the partners in proportion to their shares of the profits.

This is based on the disadvantages of a general partnership, which include personal liability for the business's debts, potentially resulting in partners losing personal assets in a bankruptcy or lawsuit. It's also important to note that the partnership structure does not protect individual partners from the actions of the other partners, highlighting the importance of clear and thorough partnership agreements.