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:

Comprehensive Income

An overall measure of all changes in equity from non-owner sources, capturing both realized and unrealized gains and losses.

Cost-Cutting Project

Initiatives or plans implemented by a business to reduce its expenses and increase efficiency, aiming to improve overall profitability.

Erosion

In finance, the gradual reduction of the value of an asset or earnings, often due to external factors or new projects cannibalizing existing project revenues.

Incremental Cash Flows

The additional cash flows a business expects to generate from taking on a new project or making an investment decision.