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:

Capital Flight

The large-scale exodus of financial assets and capital from a country due to economic or political instability.

Imperfect Information

A situation where all parties in a transaction do not have the same information, leading to an inefficient market outcome.

Tragedy Of The Commons

A situation where individual users, acting independently according to their own self-interest, deplete or spoil shared resource through their collective action.

Controls On Corruption

Controls on Corruption are mechanisms, regulations, and practices that are put in place to combat, prevent, and reduce corruption within organizations and governments.