Asked by Maegan Neuman on May 08, 2024
Verified
Bob and Sam formed a partnership. Bob invested $19,000, cash; Sam invested $8,000 cash and equipment with a fair value of $6,000. The proper entry to record this is to:
A) debit Cash $27,000; debit Equipment $6,000; credit Capital $33,000.
B) debit Cash $27,000; debit Equipment $6,000; credit Accounts Payable $33,000.
C) debit Cash $27,000; debit Equipment $6,000; credit Bob's Capital $19,000; and credit Sam's Capital $14,000.
D) debit Cash $27,000; credit Bob's Capital $19,000; and credit Sam's Capital $8,000.
Fair Value
Fair Value is the estimated market value of an asset or liability, reflecting the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
Equipment
Tangible property that is used in the operations of a business, not intended for sale.
Cash
Currency and other liquid instruments that a company possesses, readily available for transactions.
- Expound on the initial steps for investments in partnerships and the mechanisms for listing and valuing assets.
- Perform the right recording of transactions for setting up a partnership, financial contributions from partners, and splitting of profits and losses.
Verified Answer
RG
Ricardo GarzaMay 12, 2024
Final Answer :
C
Explanation :
The correct entry involves debiting Cash for the total cash contributed ($27,000 = $19,000 + $8,000) and debiting Equipment for the fair value of the equipment contributed by Sam ($6,000). The credits are to each partner's capital account for their respective contributions: Bob's Capital for $19,000 (cash only) and Sam's Capital for $14,000 (cash of $8,000 + equipment of $6,000).
Learning Objectives
- Expound on the initial steps for investments in partnerships and the mechanisms for listing and valuing assets.
- Perform the right recording of transactions for setting up a partnership, financial contributions from partners, and splitting of profits and losses.