Question

Bess and Gail executed a partnership agreement that lists the assets contributed by the partners as follows: Bess, cash of P20,000 and furniture and equipment worth P15,000; Gail, cash of P30,000, inventory and building valued at P15,000 and P40,000, respectively. The building is subject to a mortgage of P10,000, which the partnership assumed. What amounts should be credited to the capital of Bess and Gail, respectively?

a. P35,000 and P85,000
b. P35,000 and P75,000
c. P55,000 and P55,000
d. P60,000 and P60,000
e. None of the above

Answer 1

Bess's capital contribution is the sum of her cash and the value of the furniture and equipment, totaling P35,000. Gail's capital contribution includes her cash, the value of the inventory and building, less the mortgage amount the partnership has assumed, totaling P75,000. Therefore, the amounts credited to Bess and Gail's capital accounts are P35,000 and P75,000, respectively.

Step-by-step explanation:

To determine the capital contributions of Bess and Gail for their partnership, we need to add up the value of the assets each partner has contributed and subtract any liabilities the partnership has assumed.

For Bess, she brings in cash of P20,000 and furniture and equipment worth P15,000, leading to a total contribution of P35,000. Therefore, Bess's capital account should be credited P35,000.

Gail contributes cash of P30,000, inventory valued at P15,000, and a building valued at P40,000. Since the partnership is assuming a mortgage on the building of P10,000, this liability is subtracted from Gail's total contribution. Hence, the equation for Gail's capital contribution is (P30,000 + P15,000 + P40,000) - P10,000, resulting in P75,000. This means Gail's capital account should be credited P75,000.

Thus, the correct answer to what amounts should be credited to the capital of Bess and Gail, respectively, is option (b.) P35,000 and P75,000.