Jones and Smith formed a partnership with each partner contributing the following items:
Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership.
-Refer to the above information.What is the balance in each partner's capital account for financial accounting purposes?

Question

Jones and Smith formed a partnership with each partner contributing the following items:
  Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership.
-Refer to the above information.What is the balance in each partner's capital account for financial accounting purposes?

Quizplus · Accepted Answer

Jones contributed $60,000 in cash and $10,000 in equipment, totaling $70,000. Smith contributed $40,000 in cash and $20,000 in inventory, totaling $60,000. Therefore, the total contributions to the partnership were $130,000. Since Jones and Smith agree to share equally in the liabilities assumed by the partnership, each partner's share of the liabilities is $15,000 ($30,000/2). Thus, Jones' capital account is $55,000 ($70,000 - $15,000) and Smith's capital account is $45,000 ($60,000 - $15,000). Option C reflects this correctly.

Jones and Smith Formed a Partnership with Each Partner Contributing