Wright, Bell, and Edison Are Partners and Share Income in a 2:5:3

question 90

Multiple Choice

Wright, Bell, and Edison are partners and share income in a 2:5:3 ratio. The partnership's capital balances are as follows: Wright, $33,000, Bell $27,000 and Edison $40,000. Edison decides to withdraw from the partnership, and the partners agree not to revalue the assets upon Edison's retirement.
-The journal entry to record Edison's June 1 withdrawal from the partnership if Edison sells his interest to Whitney for $45,000 after the other two partners approve Whitney as partner is:

• A) Debit Edison, Capital $40,000; credit Cash $40,000.
• B) Debit Edison, Capital $45,000; credit Whitney, Capital $45,000.
• C) Debit Edison, Capital $40,000; debit Cash $5,000; credit Whitney, Capital $45,000.
• D) Debit Edison, Capital $40,000; credit Whitney, Capital $40,000.
• E) Debit Edison, Capital $40,000; debit Wright, Capital $2,500; debit Bell, Capital $2,500; credit Whitney, Capital $45,000.

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Definitions:

X-Inefficiency

The difference between efficient behavior of businesses assumed or required by economic theory and their observed behavior in reality, often as a result of a lack of competitive pressure.

Winner-Takes-All Market

A market in which the dominant player captures almost all of the market share and benefits, leaving very little for other competitors.

Marginal Revenue Product

Incremental income earned by utilizing one more unit of a resource, like labor or capital.

Media Hype

The excessive promotion or sensationalism of news stories, products, or events in the media.