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Chat is investing $10,000 and will do all the legal work to draft partnership agreements, act...

Chat is investing $10,000 and will do all the legal work to draft partnership agreements, act as an attorney on purchase of buildings a d file all necessary papers for the partnership. Had he done the same work for a client he would have charged $40,000. The $40,000 can be considered as a Capital Contribution to the Partnership? If the partners hire a lawyer to do The Paper Work and Represent them will pay the same amount an incurring an expense? Can you clarify this, please?

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Answer #1

If the partners hire a lawyer to do the Paper Work of partnership and represent them, then Chat will pay the lawyer an amount of $40000.

Thus, if Chat himself performs all these jobs of Paper Work of partnership and representation, then an entry would be made :

Debit Legal expenses $40000

Credit Capital contribution $40000

It says that the partnership has expended an amount of $40000 and the same earned and contributed towards the Capital to the partnership by Chat.

The partnership instead of paying cash given capital share to the service provider. Chat, the service provider, instead of receiving cash has received capital contribution share in the partnership.

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