A partner contributes, as part of her initial investment, accounts receivable with an allowance for doubtful accounts. Which of the following reflects a proper treatment?
A) The allowance for doubtful accounts should be recorded at its fair value.
B) The allowance account may be set up on the books of the partnership because it relates to the existing accounts that are being contributed.
C) The allowance account should not be carried onto the books of the partnership.
D) The accounts receivable and allowance should not be recorded on the books of the partnership because a partner must invest cash in the business.

Question

Quizplus · Accepted Answer

CThe allowance for doubtful accounts is directly related to the accounts receivable being contributed, so it is appropriate for the partnership to establish an allowance account (B). Additionally, there is no requirement that a partner must only contribute cash, so non-cash contributions like accounts receivable are acceptable, but it is also common practice not to carry over the allowance for doubtful accounts to maintain a conservative valuation of assets in the new partnership (C).

A Partner Contributes, as Part of Her Initial Investment, Accounts