Question

Maxwell and Smart are forming a partnership. Maxwell is investing a building that has a market value of $89,000. However, the building carries a $47,000 mortgage that will be assumed by the partnership. Smart is investing $38,000 cash. The balance of Maxwell's Capital account will be:

a. $51,000
b. $89,000
c. $47000
d. $42,000
e. $80,000

Answer 1

The correct option is D,$42,000

Step-by-step explanation:

The balance on Maxwell capital account=market value of building contributed less the mortgage on the building

market value of the building is $89,000

Mortgage on the building is $47,000

balance on Maxwell capital account=$89,000-$47,000

balance on Maxwell capital account=$42000

The correct option is D.

Care must taken so that one does include the cash of $38,000 contributed by Smart in Maxwell's capital account balance calculation,otherwise one would have concluded that option E,$80,000($42,000+$38,000)