When a new person is admitted into a partnership by investing assets in the partnership at book value,the new person:
A)pays cash directly to existing partners based on the market value of the partnership's assets.
B)transfers assets to the partnership which are equal in value to the existing partners' capital balances (no bonus).
C)pays cash directly to the existing partners in amounts equal to their respective capital balances.
D)transfers assets to the partnership which are equal in value to the market value of the partnership's assets.

Question

Quizplus · Accepted Answer

When a new person is admitted into a partnership by investing assets in the partnership at book value, the new partner transfers assets to the partnership which are equal in value to the existing partners' capital balances (no bonus). This is done to maintain the existing partners' ownership percentage and avoid any potential conflicts or unfair advantages. Option A and C involve a payment based on market value or capital balance, which could lead to unequal ownership stakes. Option D involves the transfer of assets at market value, which could create a bonus for the existing partners and dilute the new partner's ownership stake. Option B is the best choice as it maintains fairness and equality among partners.

When a New Person Is Admitted into a Partnership by Investing