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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