Question

Paul and Mark form a partnership on January 1 of the current year. Paul contributes $50,000 and Mark contributes $100,000 and a building worth $200,000. The building is subject to a mortgage of $40,000, which is assumed by the partnership. Paul and Mark agree to share profits and losses equally. Mark's beginning capital account should be:

a. $300,000.
b. $280,000.
c. $155,000.
d. $260,000.
e. $150,000.

Answer 1

Mark's beginning capital account is $260,000, which includes his cash contribution of $100,000 and the value of the building at $200,000, minus the $40,000 mortgage assumed by the partnership.

Step-by-step explanation:

The question is asking about calculating the beginning capital account for Mark in a new partnership. Mark contributes $100,000 cash and a building worth $200,000, with a mortgage of $40,000 on it. When he contributes the building, the mortgage becomes a liability of the partnership, which means that the value of his contribution must account for this liability.

Therefore, Mark's beginning capital will be calculated as:

• Mark's cash contribution: $100,000
• Value of the building: $200,000
• Mortgage assumed by the partnership: -$40,000
• Total capital account (Cash + Building - Mortgage): $100,000 + $200,000 - $40,000 = $260,000

So, Mark's beginning capital account in the partnership should be option d. $260,000.