Question

Henry Jones contributed equipment, inventory, and $57,300 cash to a partnership. The equipment had a book value of $27,800 and market value of $34,100. The inventory had a book value of $46,700 but only had a market value of $10,400 due to obsolescence. The partnership also assumed a $14,900 note payable owed by Henry that was originally used to purchase the equipment. What amount should be recorded to Henry's capital account?
a.$86,900
b.$123,200
c.$146,700
d.$116,900

Answer 1

Answer:

A. $86,900

Explanation:

Henry’s capital account will be credited by the amount of $86,900. See computation below.

Cash $57,300

Equipment 34,100

Inventory 10,400

Note payable (14,900)

————

Total $86,900

*Both the equipment and the inventory will be recorded on partnership’s book at fair market value at the time of contribution.

*The partnership may absorb the obligation if it is associated with an asset contributed by partner. Thus, it will be deducted to his capital account as contribution to the partnership.