Question

In their business partnership, George has an ownership interest of 55% and Ben has an ownership interest of 45%. In the current year, they purchase equipment for $9900. In order to finance the equipment purchase, George makes a cash contribution of $7400 and Ben makes a cash contribution of $2500 to the partnership. Based on the information provided, which of the following is TRUE regarding the partnership balance sheet?

A) Both George, Capital and Ben, Capital will increase by $9900.
B) George, Capital will increase by $7400 and Ben, Capital will increase by $2500.
C) George, Capital will increase by $9900 and Ben, Capital will remain unchanged.
D) George, Capital will increase by $5445 and Ben, Capital will increase by $4455.

Answer 1

Answer: B) George, Capital will increase by $7400 and Ben, Capital will increase by $2500

Step-by-step explanation:

The Capital Accounts reflect the investments by the various shareholders in the business. It is based on the worth of what was contributed.

As George made a cash contribution of $7,400, George's capital account must be increased by the same amount of $7,400 to reflect the investment that George has made.

The same goes for Ben.