Robert Morris invests land in a partnership with Andy Phillips. Morris purchased the land in 2012 for $300,000. A real estate appraiser now values the land at $700,000. Morris wants $500,000 capital in the new partnership, but Phillips objects. Phillips believes that Morris’s capital investment should be measured by the book value of his land. Phillips and Morris seek your advice.
Requirements
1. Which value of the land is appropriate for measuring Morris’s capital—book value or current market value?
2. Give the partnership’s journal entry to record Morris’s investment in the business.