If accounts receivable are contributed when a partnership is established its fair value is recorded as the:
A) gross amount.
B) gross amount less a separate credit entry for allowance for doubtful debts.
C) historical cost.
D) disposal value.

Question

Quizplus · Accepted Answer

When accounts receivable are contributed to a partnership, their fair value is recorded as the gross amount less a separate credit entry for allowance for doubtful debts. This is because the partnership needs to account for the possibility that some of the accounts receivable may not be collected, and so it must set aside an allowance for doubtful debts to cover this possibility. Therefore, the fair value of the accounts receivable is not simply the gross amount, but rather the gross amount adjusted for the estimated amount that may not be collected.

If Accounts Receivable Are Contributed When a Partnership Is Established