When a New Partner Buys an Ownership Interest in a Partnership

question 41

Multiple Choice

When a new partner buys an ownership interest in a partnership directly from an existing partner for more than the balance in that partner's capital account, under the more common method of accounting for those transactions,

• A)the partnership recognizes a gain.
• B)the partner who sold his or her interest makes exit payments to the other partners.
• C)the transaction is comparable to the sale of corporate shares of stock in the secondary market.
• D)the new partner must pay the remaining previous partners a "premium" to be admitted.

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Definitions:

Igneous Rocks

Stones created by the process of magma or lava cooling and turning into solid form.

Sandstone

A sedimentary rock composed mainly of sand-sized mineral particles or rock fragments, commonly used in building and construction.

Shale

A fine-grained sedimentary rock formed from clay and other minerals, often used in the production of oil and natural gas through fracking.

Conglomerate

A sedimentary rock made up of rounded pebbles, cobbles, and boulders cemented together.