Question

Sally Smythe enters into a partnership by contributing the following:

Cash $14,200
Accounts Receivable $3,700
Machinery which cost $2,200
Fair market value $1,325
Accounts payable $2,100.

What amount will be recorded in her capital account?

Answer 1

Answer:

$17,125

Explanation:

Sally's capital should include all the assets that she contributes to the partnership minus the liabilities. Contributions to partnerships must be recorded at fair market value.

Sally's capital account = cash + accounts receivable + FMV of machinery - accounts payable = $14,200 + $3,700 + $1,325 - $2,100 = $17,125