Question

Fontaine and Monroe are forming a partnership. Fontaine invests a building that has a market value of $356,000; the partnership assumes responsibility for a $128,000 note secured by a mortgage on the property. Monroe invests $103,000 in cash and equipment that has a market value of $78,000. For the partnership, the amounts recorded for the building and for Fontaine's Capital account are:_______.
a. Building $356,000; Fontaine, Capital $309,000.
b. Building $356,000; Fontaine, Capital $356,000.
c. Building $228,000; Fontaine, Capital $128,000.
d. Building $228,000; Fontaine, Capital $228,000.
e. Building $356,000; Fontaine, Capital $228,000.

Answer 1

Answer: e. Building $356,000; Fontaine, Capital $228,000.

Explanation:

The company would record the building which Fontaine brought in at its Market value which is $356,000.

However, because the partnership assumes responsibility for a $128,000 note secured by a mortgage on the property, this cannot be counted as a capital contribution from Fontaine so this will be removed from their capital contribution;

= 356,000 - 128,000

= $228,000