Owners’ Equity for Unincorporated Businesses The balance sheet of E&C Partnership contained the following items:

The changes in partnership capital accounts for the year were as follows:

a. The partnership agreement specifies that 60 percent of net income is to be allocated to Emmet Jones and 40 percent to Clayton Jones. Why is it important to specify the income sharing ratio in the partnership agreement?

b. Why may creditors lend money to the partnership even if it does not appear to have a significant amount of assets that could be used for repayment?

c. How does the claim of the creditors of E&C Partnership differ from claims of a corporation’s creditors?

d. What amount of the liabilities of the partnership might Emmet Jones be required to pay in the event the partnership encounters financial difficulties?

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Cash Accounts receivable Buildings & equipment (net) $ 20,000 60.000 Total assets Accounts payable Partnership capital Emmet Jones Clayton Jones Total liabilities & equity 330.000 $410,000 $200,000 138.000 72,000 $410,000