Final answer:
The correct choice when a new partner joins a partnership through a cash transaction is that it typically does not impact the partnership's tangible assets and liabilities directly unless the agreement states otherwise. Valuation complexities and practices may vary, but a direct effect is uncommon. Thus, option a is correct.
Step-by-step explanation:
When a new partner is admitted to a partnership as a result of a cash transaction between individual parties, several key issues must be considered. The transaction often involves the new partner contributing capital to the partnership or making a payment directly to the existing partners.
Option a, which states that the new partner's admission has no impact on partnership tangible assets and liabilities, is generally correct. The new partner's investment typically doesn't directly change the tangible assets or liabilities, unless part of the agreement specifically involves the purchase of partnership assets or assuming liabilities.
Option b suggests a different mechanism, which is the possibility of recording the transaction as a capital reclassification from the existing partners to the new partner. This would depend on the terms of the partnership agreement and how the new partner's investment is structured. If the investment is for a share of the existing partners' equity, it could indeed be recorded as a capital reclassification.
Option c, which posits that the cash payment by the new partner must form the basis for the new partnership valuation, is not necessarily true. The valuation of the partnership can be influenced by many factors, including the cash injection, but it is not solely determined by this payment. Valuation may consider the fair market value of assets, future earnings potential, and other relevant factors. Additionally, in some cases, the existing partners may decide to revalue the partnership's net assets to fair value, but this is not mandated by the mere fact of a new partner's admission with cash.
In conclusion, the correct option is a, as it accurately conveys the typical impact of a new partner's cash investment on the partnership's tangible assets and liabilities.