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Adjustments to the sole proprietorship business accounts prior to partnership formation may be omitted since these adjustments will not affect the partners' capital credits.

a. True
b. False

1 Answer

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Final answer:

Adjustments to sole proprietorship accounts must be made before forming a partnership since they affect the partners' capital credits, making the initial statement false.

Step-by-step explanation:

The statement that adjustments to the sole proprietorship business account prior to partnership formation may be omitted since these adjustments will not affect the partners' capital credits is false. Prior to forming a partnership, it is crucial for all adjustments to be made to the sole proprietorship's accounts. This is because these adjustments will have a direct impact on the capital accounts of the incoming partners, reflecting a true and fair view of the business's financial position. The capital credit of each partner determines their share of profit, losses, and the distribution of assets upon dissolution of the partnership. Moreover, all financial information should be clear and accurate to ensure fairness and transparency among the partners entering the new business arrangement.

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