Question

Steffi Derr and Leigh Finger form a partnership by combining assets of their separate businesses. Derr contributes the following: cash, $1,000; supplies that cost $2,400; inventory that cost $3,500; and machinery that cost $9,900 along with its accumulated depreciation of $5,000. The partners agree that $2,000 is a good estimate of supplies, that inventory has a market value of $3,000, and that machinery is worth $4,000. Prepare the partnership’s journal entry to record Derr’s investment.

Answer 1

Steffi Derr's investment in the partnership is recorded by debiting the agreed values of cash, supplies, inventory, and machinery, and crediting the total amount to Derr's capital account.

Step-by-step explanation:

To record Steffi Derr's investment into the partnership with Leigh Finger, we must create a journal entry reflecting the agreed values of the assets contributed. The assets include cash, supplies, inventory, and machinery. The partners have agreed that the supplies are worth $2,000, the inventory has a market value of $3,000, and the machinery is worth $4,000. It should be noted that while the machinery originally cost $9,900, its accumulated depreciation is $5,000, which impacts its book value, but does not affect the agreed value for the purpose of this contribution.

The journal entry to record Derr's investment would be as follows:

• Cash (Dr) $1,000
• Supplies (Dr) $2,000
• Inventory (Dr) $3,000
• Machinery (Dr) $4,000
• Derr, Capital (Cr) $10,000

The total contribution by Derr is credited to their capital account, reflecting their share in the partnership.