Question

Dominic and Morgan are partners. Dominic has a capital balance of $360,000 and Morgan has a capital balance of $265,000. Morgan sells $125,000 of his ownership to Lance. Which of the following is true of the items in the balance​ sheet?

A. Assets will decrease by $125,000.
B. Assets will increase by $125,000.
C. The total equity decreases by $125,000.
D. The total equity remains unchanged.

Answer 1

D. The total equity remains unchanged

Step-by-step explanation:

Two partners are Dominic and Morgan. Their capital are $360,000 and $265,000. Total is $625,000. Now Morgan has decided to sell $125,000 of his ownership to Lance. So Lance will pay this money To Morgan. After admission capital of Morgan will be reduced to $140,000 and new partner Lance's capital is $125,000. Thus there will be no change in asset or total equity. However it has been assumed that new partner will not bring any goodwill.