Question

Patel and Rao decide to form a partnership. Patel contributes $300,000 in cash. Rao contributes buildings...

Patel and Rao decide to form a partnership. Patel contributes $300,000 in cash. Rao contributes buildings and equipment with a fair market value of $500,000, subject to a mortgage of $150,000, which the partnership assumes.

Assume the partners specify an agreed-upon percentage in the initial partner capital, as follows: 40% to Patel, and 60% to Rao.

If the goodwill approach to partnership formation is used, Rao's initial capital balance is:

A.

$350,000
B.

$450,000
C.

$410,000
D.

$400,000
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Homework Answers

Answer #1

Ans is

$450,000

Working:-

The total capital of the firm Patel capital/capital ratio
= 300000/.4
750000
Patel capital 300000
Rao Capital 450000 (Difference between total capital and Patel Capital)
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