Final answer:
The student's question concerns the revaluation of assets in a partnership and its effect on the existing partners' capital accounts before admitting a new partner. In this case, equipment was revalued downward by $18,000, which must be reflected in the capital balances of the partners before admitting the new partner to ensure equity.
Step-by-step explanation:
The question relates to the revaluation of assets in a partnership and how it affects the capital accounts of existing partners when a new partner is admitted. Specifically, the issue here involves a partnership where S. Stephens and J. Perez share income equally and have capital balances of $100,000 and $139,000 respectively. Prior to the admission of the new partner, D Fredrick, equipment is revalued, causing a decrease in value by $18,000. This downward revaluation would need to be reflected in the capital accounts of Stephens and Perez before the new partner is introduced.
Using the provided references as analogies, we can understand that changes in asset values, like the appreciation of Freda's house or the equity value in Ben's property after paying off a portion of the mortgage, have direct impacts on an individual's net worth or equity. Similarly, in a partnership firm, the revaluation of assets affects partners' equity. Therefore, Stephens and Perez must adjust their capital accounts to reflect this change before D Fredrick's capital contribution is accounted for, to ensure an equitable and fair entry for the new partner.