Question

Sandra and Kelsey are forming a partnership. Sandra will invest a piece of equipment with a book value of $6,500 and a fair market value of $12,900. Kelsey will invest a building with a book value of $34,700 and a fair market value of $73,200. What amount will be recorded to Sandra's capital account?

a. $6,500
b. $73,200
c. $34,700
d. $12,900

Answer 1

In forming a partnership, the contribution of an asset is recorded at its fair market value, therefore, Sandra's capital account will be credited $12,900.

Step-by-step explanation:

When Sandra and Kelsey are forming a partnership and contributing assets with different book values and fair market values, the amount that will be recorded to Sandra's capital account is the fair market value of the asset she is contributing. Sandra is investing a piece of equipment with a book value of $6,500 and a fair market value of $12,900. Therefore, the amount that will be recorded to Sandra's capital account is the fair market value, which is option d. $12,900.