Fontaine and Monroe are forming a partnership.Fontaine invests a building that has a market value of $250,000;the partnership assumes responsibility for a $75,000 note secured by a mortgage on the property.Monroe invests $100,000 in cash and equipment that has a market value of $55,000.For the partnership,the amounts recorded for the building and for Fontaine's Capital account are:
A)Building $250,000;Fontaine,Capital $250,000.
B)Building $175,000;Fontaine,Capital $175,000.
C)Building $250,000;Fontaine,Capital $75,000.
D)Building $250,000;Fontaine,Capital $175,000.
E)Building $175,000;Fontaine,Capital $75,000.

Question

Quizplus · Accepted Answer

The market value of the building contributed by Fontaine is $250,000, therefore the building account will be credited with $250,000. However, since the partnership will be assuming a mortgage of $75,000, this amount will be debited to the building account leaving the net amount of $175,000 ($250,000 - $75,000) to be credited to Fontaine's Capital account. Therefore, the correct entries are: Building $250,000 (credit); Fontaine, Capital $175,000 (credit).

Fontaine and Monroe Are Forming a Partnership