Gary, Peter, and Chris Own a Firm as Partners

question 127

Multiple Choice

Gary, Peter, and Chris own a firm as partners. Gary has a capital balance of $25,000; Peter a capital balance of $40,000; and Chris has a capital balance of $31,000. As per the partnership agreement, Gary gets a profit share of 2/9; Peter has 4/9; and Chris has 3/9. Which of the following is true, if Gary withdraws from the partnership by receiving $25,000?

• A)Peter, Capital and Chris, Capital will be credited for $12,500 each.
• B)Gary, Capital will be debited for $25,000.
• C)Cash is debited for $25,000.
• D)Peter, Capital will be credited for $25,000.

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Definitions:

Marginal Cost

The outlay for creating another unit of a product or service.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Output

The total amount of goods or services produced by a company, industry, or economy within a specific period.

Labor

The human effort, including physical and mental efforts, used in the production of goods and services.