Tim and Michelle Have Decided to Form a Partnership

question 106

Multiple Choice

Tim and Michelle have decided to form a partnership. Tim contributes $8,000 cash and $2,000 in merchandise inventory. While journalizing this transaction:

• A)Tim, Capital will be debited for $10,000.
• B)Tim, Capital will be credited for $10,000.
• C)Tim, Capital will be credited for $6,000 and Michelle, Capital will be credited for $4,000.
• D)Tim, Capital will be debited for $6,000 and Michelle, Capital will be debited for $4,000.

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Definitions:

Market Risk

The risk of losses in positions arising from movements in market prices.

Firm-specific Risk

The portion of an asset's risk that is attributable to the company's individual factors, uncorrelated with general market movements.

Nonsystematic Risk

The part of an investment's risk that is specific to the investment, unrelated to the market's overall movements.

Diversification

The strategy of spreading investments across various financial assets to reduce exposure to risk.