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Fontaine and Monroe are forming a partnership. Fontaine invests a building that has a market value of $356,000; the partnership assumes responsibility for a $128,000 note secured by a mortgage on the property. Monroe invests $103,000 in cash and equipment that has a market value of $78,000.

For the partnership, the amounts recorded for the building and for Fontaine's Capital account are:

a. Building $356,000; Fontaine, Capital $309,000.
b. Building $356,000; Fontaine, Capital $356,000.
c. Building $228,000; Fontaine, Capital $128,000.
d. Building $228,000; Fontaine, Capital $228,000.
e. Building $356,000; Fontaine, Capital $228,000.

Answer :

The building's market value of $356,000 is recorded, but Fontaine's Capital account is credited with the net value of his investment after accounting for the $128,000 note, which results in Fontaine's Capital being $228,000. The correct option is e.

When Fontaine and Monroe form a partnership with Fontaine investing a building and Monroe investing cash and equipment, we must consider how these contributions are recorded in the partnership's books. Fontaine invests a building with a market value of $356,000, but the partnership also assumes responsibility for a $128,000 note secured by a mortgage on the property. Thus, the net value of Fontaine's contribution is the market value of the building less the note, which equals $228,000 ($356,000 - $128,000). Consequently, the building should be recorded at its market value of $356,000, and Fontaine's Capital account should be credited with the net value of his investment, which is $228,000.

Therefore, the correct option for the amounts recorded for the building and for Fontaine's Capital account is:

Building $356,000; Fontaine, Capital $228,000.

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