Chen and Wright are forming a partnership. Chen will invest a building that currently is being used by another business owned by Chen. The building has a fair market value of$65,000. Also, the partnership will assume responsibility for a $15,000 note secured by a mortgage on the building. Wright will invest $20,000 cash. On the books of thepartnership, the amount to be recorded for the building and credit to Chen's capital account are:
A) $65,000 and $65,000.
B) $50,000 and $20,000.
C) $20,000 and $65,000.
D) $50,000 and $40,000.
E) $65,000 and $50,000.

Question

Quizplus · Accepted Answer

The building is recorded at its fair market value of $65,000. However, since the partnership assumes the $15,000 mortgage, Chen's capital account is credited with the net value of $50,000 ($65,000 - $15,000).

Chen and Wright Are Forming a Partnership