A is corrent. When a partnership incorporates, assets and liabilities must be revalued to their fair market values on the date of incorporation. In this case, the assets and liabilities will have fair market values of $120,000 ($90,000 + $30,000) and $10,000, respectively. The stockholders’ equity of the new corporation will be $110,000 ($120,000 – $10,000), and the journal entry to create this new corporation will be | Current assets | 90,000 | | | Equipment | 30,000 | | | | Liabilities | | 10,000 | | | Common stock ($5 × 1,000) | | 5,000 | | | Add. contributed capital ($110,000 – $5,000) | | 105,000 |
B is incorrect. When a partnership incorporates, assets and liabilities must be revalued to their fair market values on the date of incorporation. In this case, the assets and liabilities will have fair market values of $120,000 ($90,000 + $30,000) and $10,000, respectively. The stockholders’ equity of the new corporation will be $110,000 ($120,000 – $10,000), and the journal entry to create this new corporation will be | Current assets | 90,000 | | | Equipment | 30,000 | | | | Liabilities | | 10,000 | | | Common stock ($5 × 1,000) | | 5,000 | | | Add. contributed capital ($110,000 – $5,000) | | 105,000 |
C is incorrect. When a partnership incorporates, assets and liabilities must be revalued to their fair market values on the date of incorporation. In this case, the assets and liabilities will have fair market values of $120,000 ($90,000 + $30,000) and $10,000, respectively. The stockholders’ equity of the new corporation will be $110,000 ($120,000 – $10,000), and the journal entry to create this new corporation will be | Current assets | 90,000 | | | Equipment | 30,000 | | | | Liabilities | | 10,000 | | | Common stock ($5 × 1,000) | | 5,000 | | | Add. contributed capital ($110,000 – $5,000) | | 105,000 |
D is incorrect. When a partnership incorporates, assets and liabilities must be revalued to their fair market values on the date of incorporation. In this case, the assets and liabilities will have fair market values of $120,000 ($90,000 + $30,000) and $10,000, respectively. The stockholders’ equity of the new corporation will be $110,000 ($120,000 – $10,000), and the journal entry to create this new corporation will be | Current assets | 90,000 | | | Equipment | 30,000 | | | | Liabilities | | 10,000 | | | Common stock ($5 × 1,000) | | 5,000 | | | Add. contributed capital ($110,000 – $5,000) | | 105,000 |
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