On May 1, 20X1, Cathy and Mort formed a partnership and agreed to share profits and losses in the ratio of 3:7, respectively. Cathy contributed a parcel of land that cost her $10,000. Mort contributed $40,000 cash. The land was sold for $18,000 immediately after the partnership's formation. What amount should be recorded in Cathy's capital account at the time the partnership is formed the partnership's? A) $17,400. B) $15,000. C) $18,000. D) $10,000.

Question

Delilah White

Business

7 January, 10:13

On May 1, 20X1, Cathy and Mort formed a partnership and agreed to share profits and losses in the ratio of 3:7, respectively. Cathy contributed a parcel of land that cost her $10,000. Mort contributed $40,000 cash. The land was sold for $18,000 immediately after the partnership's formation. What amount should be recorded in Cathy's capital account at the time the partnership is formed the partnership's? A) $17,400. B) $15,000. C) $18,000. D) $10,000.

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Answers (1)

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Elaina Buchanan · Answer 1

C) $18,000

Explanation:

As per the partnership rules, the assets contributed by partners shall be valued at the value that the asset will fetch in the open market. For this the asset is recorded at fair value only.

In the given instance, there are two partners Cathy and Mort where Cathy contributed land of original cost of $10,000.

Provided the land is sold just after the incorporation of partnership firm.

Therefore, value of land as on date of incorporation that is fair value = $18,000, sale value.

Thus, the capital account of Cathy shall be fair value of his contribution = $18,000.

Correct option is

C) $18,000