Chapter 12, Problem 8QC

Peter and Steve admit Meredith to their partnership, with Meredith paying $70,000 more than the book value of her equity in the new business. Peter and Steve have no formal profit-and-loss-sharing agreement. What effect does admitting Meredith to the partnership have on the capital balances of Peter and Steve?

Learning Objective 4

1. Credit the Peter and Steve capital accounts for $35,000 each.
2. Cannot be determined because there’s no profit-and loss-sharing ratio.
3. Debit the Peter and Steve capital accounts for $35,000 each.
4. Credit the Peter and Steve capital accounts for $70,000 each.