Question

A partner invested into the partnership a building with a P250,000 book value and a P400,000 fair market value. Attached to the asset is a mortgage payable of P125,000 which was assumed by the firm. As a result of the investment, the partner's capital account should be credited for

a. P 125,000
b. P 275,000
c. P250,000
d. P400,000
e. None of the above

Answer 1

The partner's capital account should be credited with P275,000, which is the fair market value of the building (P400,000) minus the mortgage payable assumed by the partnership (P125,000).

Step-by-step explanation:

The question relates to how an investment in the form of a building should be recorded in a partnership's accounting records. If a partner invests a building with a book value of P250,000 and a fair market value of P400,000, and the partnership assumes the attached mortgage payable of P125,000, the correct entry would credit the partner's capital account with the fair market value of the building less the mortgage payable that is assumed by the firm. Therefore, the partner's capital account should be credited for P400,000 (fair market value) - P125,000 (mortgage payable) = P275,000. Hence, the correct answer is b. P275,000.