Hannah Johnson contributed equipment, inventory, and $53,000 cash to a partnership. The equipment had a book value of $25,000 and a market value of $28,000. The inventory had a book value of $50,000 but only had a market value of $15,000 due to obsolescence. The partnership also assumed a $12,000 note payable owed by Hannah that was originally used to purchase the equipment.What amount should be recorded to Hannah's capital account?

Question

Hannah Johnson contributed equipment, inventory, and $53,000 cash to a partnership. The equipment had a book value of $25,000 and a market value of $28,000. The inventory had a book value of $50,000 but only had a market value of $15,000 due to obsolescence. The partnership also assumed a $12,000 note payable owed by Hannah that was originally used to purchase the equipment.​What amount should be recorded to Hannah's capital account?

Quizplus · Accepted Answer

The initial book value of the assets contributed by Hannah is $75,000 [= $25,000 (equipment) + $50,000 (inventory)]. However, the market value is only $43,000 [= $28,000 (equipment) + $15,000 (inventory)]. Therefore, there is an unrealized loss of $32,000. This loss should be allocated to Hannah's capital account because she contributed the assets.

The journal entry to record the contribution is:

Equipment	28,000
Inventory	15,000
Cash	53,000
Note payable	12,000
Hannah Johnson, Capital	84,000 [= $75,000 - $32,000 + $53,000 - $12,000]

Therefore, the amount recorded to Hannah's capital account is $84,000.

Hannah Johnson Contributed Equipment, Inventory, and $53,000 Cash to a Partnership