Question

When a partner invests non-cash assets into the partnership, these assets should be recorded at

a. Their book value
b. Their original cost to the previous owner
c. Their fair market value
d. The value assigned by the contributing partner

Answer 1

Non-cash assets invested into a partnership should be recorded at their fair market value to ensure an accurate reflection of the partnership's financial status.

Step-by-step explanation:

When a partner invests non-cash assets into the partnership, these assets should be recorded at their fair market value. Fair market value is the price that the assets would sell for on the open market and is considered the most objective measure of an asset's worth at the time of investment. Recording non-cash assets at fair market value ensures that the partnership's balance sheet reflects the true economic value of the assets contributed, establishes the basis for the ownership percentage, and is generally accepted by accounting principles.