Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for total assets and for total capital account are:
A) Total assets $525,000; total capital $400,000.
B) Total assets $400,000; total capital $400,000.
C) Total assets $650,000; total capital $650,000.
D) Total assets $400,000; total capital $525,000.
E) Total assets $525,000; total capital $525,000.

Question

Quizplus · Accepted Answer

The total assets are calculated by adding the market value of the building ($350,000), the cash ($100,000), and the equipment ($75,000), which equals $525,000. The total capital is the sum of the investments made by both partners, which is $350,000 (building) + $100,000 (cash) + $75,000 (equipment) = $525,000, minus the liability assumed by the partnership ($125,000), resulting in $400,000.

Badger and Fox Are Forming a Partnership