Question

Forman and Berry are forming a partnership. Forman will invest a building that currently is being used by another business owned by Forman. The building has a market value of $80,000. Also, partnership will assume responsibility by for a $20,000 note secured by a mortgage on that building. Berry will invest $50,000 each. For the partnership the amount to be recorded for the buildings for Forman's Capital account are:
a)Building, $60,000 and Forman, Capital $80,000.

b)Building, $80,000 and Forman, Capital, $60,000.

c)Building, $60,000 and Forman, Capital, $60,000.

d)Building, $60,000 and Forman, Capital, $50,000.

e)Building, $80,000 and Forman, Capital, $60,000.

Answer 1

Answer:

b)Building, $80,000 and Forman, Capital, $60,000.

Explanation:

Building is recorded as the asset with the value of $80,000. Forman capital will be recorded with value of $60,000, because he invested building with market value of $80,000 and a loan of $20,000 secured by this building. So the Net value of investment will be $60,000 (80,000-20,000).

Accounting journal entry for the transaction will be as follow:

Dr. Building (Asset Account)                      80,000

Cr. Mortgage payable (Liability Account)  20,000

Cr. Forman  (Capital Account)                    60,000