Chen and Wright Are Forming a Partnership

question 25

Multiple Choice

Chen and Wright are forming a partnership. Chen will invest a building that currently is being used by another business owned by Chen. The building has a market value of $90,000. Also, the partnership will assume responsibility for a $30,000 note secured by a mortgage on that building. Wright will invest $50,000 cash. For the partnership, the amounts to be recorded for the building and for Chen's Capital account are:

• A) Building, $90,000 and Chen, Capital, $90,000.
• B) Building, $60,000 and Chen, Capital, $60,000.
• C) Building, $60,000 and Chen, Capital, $50,000.
• D) Building, $90,000 and Chen, Capital, $60,000.
• E) Building, $60,000 and Chen, Capital, $90,000.

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Definitions:

Effective Rate

The actual interest rate an individual earns or pays on an investment or loan, taking into account the effect of compounding.

Semi-annually Compounded

This refers to the process of applying interest to a principal balance twice a year, effectively increasing the amount of interest earned or paid over time.

Rate of Return

The profit or deficit incurred on an investment during a certain timeframe, represented as a proportion of the investment's original price.

Maturity Date

The date on which the principal and accrued interest on an investment or loan are due.