 In this presentation, we will take a look at multiple-choice questions related to partnerships. First question, which is true? A. Partners are employees of the partnership B. Salary allowance are expenses C. Salary allowances are usually based on relative time spent working on the partnership D. Salary allowances are revenue and E. Interest allowances are deductible Let's go through these and see if we can do the process of elimination. Which is true? So these are basically a bunch of true-false questions we're going to assume or it must be the case where most of them are false and we're looking for of course the true one. So A says partners are employees of the partnership. Now you might think it's kind of true, they could set themselves out as generating wages but really they're the owners, clearly they're acting as the owners of the business. So they're not really partnerships, it's their business so typically we're not calling them employees normally. And then B says salary allowances are expenses. Now this is where it gets tricky because B, C, and D all deal with salary allowances. So you would think that the salary allowances are part of the answer so I'm just going to leave B for now because it's similar to C and D and C which is most correct. C says salary allowances are usually based on relative time spent working on the partnership. So again that sounds pretty reasonable. B says salary allowances are revenue. So I'll keep those three and then E says interest allowances are deductible. So again interest doesn't have anything to do with the others here so I'm thinking maybe we're probably focusing in on salary allowances and it's the case that interest allowances are based on capital accounts and aren't deductible. They're not part of net income, they're not an expense. So we'll leave B, C, and D and go through this again. Which is true? B, salary allowances are expenses. Or C, salary allowances are usually based on relative time spent working on the partnership. Or D, salary allowances are revenue. Now again if you see like one pretty long detailed kind of specific answer, I'm not saying it's always the case that it's the right one but oftentimes it's the case because the question that's being put together is trying to list something correctly meaning they're trying to eliminate all the kind of factors that would be incorrect which takes more legalese kind of terminology. So oftentimes the longer answer might be the more correct one. It might be useful just to give her idea of what a salary allowance is and it's not wages, it's not like payroll and that's the key of this question. We're not talking about payroll, we're talking about an agreement in the partnership agreement to pay each partner some type of fixed share of net income which we call a salary allowance. It has nothing to do with payroll, no payroll taxes, no withholdings related to it. So we're going to say then it's not B because it's not an expense, it's going to be part of the net income allocation. So instead of allocating 50-50, we're going to allocate first in accordance with a salary allowance and then possibly 50-50 for whatever's left over or something like that. And D says salary allowances are revenue and that's not typically the case either, I mean they might be considered revenue to the owner in some way, they're going to have to pay taxes on it but they're not revenue to the partnership and which is what we're kind of concentrating on and so C is going to be the most correct answer. So question and answer once again, which is true? The salary allowances are usually based on relative time spent working in the partnership. So and that's going to be, remember we're just talking about how we're going to allocate net income. So if we have one individual that works more in the partnership than the other then we might say hmm they should get paid more of the net income, how can we do that? Well we create kind of like a salary, doesn't go through payroll but we're just going to say hey we're just going to give you kind of like a wage type of distribution from the net income before we pay off the rest of the net income.