Shaun and Rick are partners.Shaun has a capital balance of $12,000 and Rick has a capital balance of $10,000.Edwin contributes a building with a current market value of $8000 to acquire an interest in the new partnership.Which of the following is TRUE of the effect of the transaction on the balance sheet? (Assume no bonus to any partner.)
A) Both assets and equity will increase by $8000.
B) Both assets and liabilities will decrease by $8000.
C) Both assets and equity will decrease by $8000.
D) Both assets and liabilities will increase by $8000.

Question

Quizplus · Accepted Answer

When Edwin contributes the building to the partnership, the asset side of the balance sheet will increase by $8000 (current market value of the building). As there is no mention of any liabilities, the equity side of the balance sheet will also increase by $8000. Therefore, option A is correct. Option B is incorrect as there is no mention of any liabilities decreasing. Option C is incorrect as the equity side of the balance sheet will increase, not decrease. Option D is incorrect as there is no mention of any liabilities increasing.

Shaun and Rick Are Partners