When Admitting a New Partner by Investment, a Bonus to Old

question 60

Multiple Choice

When admitting a new partner by investment, a bonus to old partners

• A) is usually unjustified because carrying amounts clearly reflect partnership net worth.
• B) is sometimes justified because goodwill may exist and it is not reflected in the accounts.
• C) results if the debit to cash is less than the new partner's capital credit.
• D) results if the debit to cash is equal to the new partner's capital credit.

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Definitions:

Net Loss

Occurs when a company's total expenses exceed its total revenues, indicating a negative profit for a specific time period.

Prepaid Insurance

An asset account that represents benefit expenses that have been paid in advance and are gradually recognized as expenses over the policy period.

Unearned Revenue

Money received by a company for goods or services yet to be delivered or provided, considered a liability until the goods or services are delivered.

Double Rule

A method used in accounting to draw attention to totals or end of reports by placing two lines beneath them for emphasis.