Final answer:
The statement is false; existing partners' capital accounts are credited, not debited, when they pay a bonus to a newly admitted partner, as this reflects a decrease in their share of equity.
Step-by-step explanation:
When the existing partners pay a bonus to a newly admitted partner, the statement that the existing partners' accounts are debited is false. Instead, when a bonus is paid to the incoming partner, the existing partners' capital accounts are decreased to reflect this distribution. The bonus to the new partner is an allocation of the existing partners' capital to the new partner, which means the existing partners share of the equity in the business is reduced. Therefore, the reduction is recorded by crediting the existing partners' capital accounts. This transaction effectively reduces the book value of the existing partners' ownership stake in the company to provide the new partner with a more favorable entry.
Each partner has a capital account of $10,000. They decide to admit a new partner and pay them a bonus of $5,000. In this case, the existing partners' capital accounts would be decreased by $5,000 each, and the newly admitted partner's capital account would be increased by $15,000 (their initial capital contribution plus the bonus).