Canfield invests cash of $20,000 and inventory with a cost of $60,000 and a current value of $65,000 in the Canfield and Roose Partnership.In addition,Canfield invests land with a cost of $75,000,a current market value of $170,000,and a $70,000 mortgage on the property assumed by the partnership.Roose invests equipment with a cost of $100,000 and accumulated amortization of $40,000.Roose's equipment has a current market value of $100,000.Roose also invests inventory with a current market value of $30,000.
-How much cash must be invested by Roose so that the two partners have equal balances in their capital accounts?

Question

Quizplus · Accepted Answer

To determine the amount of cash that needs to be invested by Roose, we need to calculate the current capital balances of Canfield and Roose.
Canfield's capital balance = Cash ($20,000) + Inventory (current value of $65,000 - cost of $60,000 = $5,000) + Canfield's share of land (current market value of $170,000 - mortgage of $70,000 - cost of $75,000 = $25,000) = $50,000
Roose's capital balance = Equipment (current market value of $100,000 - accumulated amortization of $40,000 = $60,000) + Inventory (current value of $30,000) + Roose's share of land (current market value of $170,000 - mortgage of $70,000) = $160,000
Since we want the capital balances to be equal, Roose needs to invest an additional $50,000 ($160,000 - $50,000 = $110,000; $110,000/2 = $55,000) in cash. Therefore, the answer is B.

Canfield Invests Cash of $20,000 and Inventory with a Cost