Question

As part of the initial investment, Ray Blake contributes equipment that had originally cost $125,000 and on which accumulated depreciation of $100,000 has been recorded. If similar equipment would cost $150,000 to replace and the partners agree on a valuation of $29,000 for the contributed equipment, what amount should be debited to the equipment account?a. $125,000b. $150,000c. $29,000d. $100,000

Answer 1

Answer:

C

Explanation:

In this question, we are asked what amount will be debited to the equipment account in a partner business.

Firstly, from the question we understand that this is a partner business. And it basically involves the ownership of a business by two or more persons.

There is a way we record an asset in a partnership business. If a partner contributes an asset to the business, the correct way of recording this is that the amount is recorded at a price that has been agreed upon by the partners after evaluation.

Now, in the case of this question, we can deduce that the partners have agreed that $29,000 is the valuation of the contributed equipment. Hence $29,000 should be debited in the equipment account.

Answer 2

Answer:

Option C $29,000

Explanation:

The accounting entry would be recording the disposal of the asset and acquisition of the new asset which would be as under:

Dr New Equipment                  $29000

Cr Carrying value of asset (125000 - 100000) $25,000

Cr Profit on Disposal                                  $4,000

Hence the correct answer would be option C.