Dominic and Morgan are partners.Dominic has a capital balance of $360,000 and Morgan has a capital balance of $225,000.Morgan sells $125,000 of his ownership to Lance.Which of the following is TRUE of the items in the balance sheet?

Question

Quizplus · Accepted Answer

When Morgan sells $125,000 of his ownership to Lance, his capital balance decreases by $125,000 to $100,000. However, since Lance has purchased a portion of Morgan's ownership, Lance's contribution of $125,000 increases the total equity of the partnership to $460,000 ($360,000 + $100,000). Therefore, the total equity remains unchanged. The sale of ownership does not affect the assets of the business.

Dominic and Morgan Are Partners