I need your help on partnership debt at formation of the par

I need your help on partnership debt at formation of the partnership. Partners A and B were formed recently to create Partnership AB. Partner A contributed cash of $100,000. Partner B contributed a piece of equipment with a FMV of $250,000 and Long term debt of $150.000. The book value is $250,000. No depreciation has been taken so far. The debt was provided to Partner B by the bank. The partnership AB will be responsible for the debt! What do I do with the debt?

Solution

Following Journal Entries wil help in solving this question:

1. Cash A/c Dr. 100,000

To A\'s Capital A/c 100,000

(Being capital introduced by A in the partnership)

2. Asset A/c Dr. 250,000

To B\'s Capital A/c 100,000

To Long Term debt 150,000

(Being equipment having FMV of 250,000 and long term debt of 150,000 intoduced as capital by B)

So, Long Term Debt will become debt of the partnership firm and will be shown as a liability in partnership\'s books of accounts. So, now the partnership will be responsible for the payment of debt to the bank.