Reference no: EM132737807

KATY, a sole proprietor wanted to expand her profitable business but she does not have enough resources. So, she thought of inviting PERRY to join her and formed a partnership on April 1, 2020. Just before admission, KATY had the following assets and liability accounts:

Cash - ?420,000;

Accounts receivable -?380,000;

Inventories -?250,000;

Notes payable -?100,000.

PERRY agreed to contribute cash equal to 30% of KATY's capital after considering the following adjustments:

(a) 2% allowance for bad debts should be recognized,

(b) the inventories have fair market value equal to 120% of the balance.

Problem 1: How much is the adjusted capital of Katy?

A) ? 1,007,600
B) ? 992,400
C) ? 1,242,400
D) ? 950,000