Jones and Smith formed a partnership with each partner contributing the following items:
Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership.

-Refer to the above information.What is the balance in each partner's capital account for financial accounting purposes?

Question

Jones and Smith formed a partnership with each partner contributing the following items:
Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership.
 
-Refer to the above information.What is the balance in each partner's capital account for financial accounting purposes?

Quizplus · Accepted Answer

The total contribution by both the partners is $120,000 ($60,000 by Jones and $60,000 by Smith). The total liabilities assumed by the partnership are $50,000. As per the agreement, Jones and Smith will share the liabilities equally, i.e. $25,000 each.

Therefore, the initial investment of Jones in the partnership will be $60,000 - 25,000 = $35,000
Similarly, the initial investment of Smith in the partnership will be $60,000 - 25,000 = $35,000

Hence, the opening balance in the capital account of Jones and Smith will be $35,000 each, and the correct option is C.

Jones and Smith Formed a Partnership with Each Partner Contributing