An Internal Auditor Was Asked to Review an Equal Equity

question 12

Multiple Choice

An internal auditor was asked to review an equal equity partnership. In one sampled transaction, Partner A transferred equipment into the partnership with a self-declared value of $10,000, and Partner B contributed equipment with a self-declared value of $15,000. The capital accounts of each partner were subsequently credited with $12,500. Which of the following statements is true regarding this transaction?

• A) The capital accounts of the partners should be increased by the original cost of the contributed equipment.
• B) The capital accounts should be increased using a weighted average based on the current percentage of ownership.
• C) No action is needed, as the capital account of each partner was increased by the correct amount.
• D) The capital accounts of the partners should be increased by the fair market value of their contribution.

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Definitions:

Affect

Affect refers to the observable expression of emotions, which can influence one's thoughts and behavior.

Counterproductive

Actions or behaviours that have the opposite effect of what is intended or desired, often hindering achievement.

Clarification

The act of making a statement or situation less confused and more comprehensible.

Paraphrasing

The process of rewording or rephrasing someone else’s statement to ensure understanding or to provide clarity.