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    Partnership Formation

    Uploaded by

    Allen Gonzaga
    A. Cruz and B. Santos have operated hardware businesses individually for years. They decided to form a partnership called AB Merchandising to combine their businesses and avoid competition. Their individual account balances were adjusted to agreed upon values for assets contributed to and liabilities assumed by the partnership. Journal entries were made in each proprietor's books to adjust accounts and bring balances to zero. The partnership recorded the agreed upon asset and liability amounts. Cash was adjusted for each partner to bring their capital balances to the agreed amount of P400,000. A statement of financial position was prepared for AB Merchandising.

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    Partnership Formation

    Uploaded by

    Allen Gonzaga
    1K views13 pages
    A. Cruz and B. Santos have operated hardware businesses individually for years. They decided to form a partnership called AB Merchandising to combine their businesses and avoid competition. Their individual account balances were adjusted to agreed upon values for assets contributed to and liabilities assumed by the partnership. Journal entries were made in each proprietor's books to adjust accounts and bring balances to zero. The partnership recorded the agreed upon asset and liability amounts. Cash was adjusted for each partner to bring their capital balances to the agreed amount of P400,000. A statement of financial position was prepared for AB Merchandising.

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    A. Cruz and B. Santos have operated hardware businesses individually for years. They decided to form a partnership called AB Merchandising to combine their businesses and avoid competition. Their individual account balances were adjusted to agreed upon values for assets contributed to and liabilities assumed by the partnership. Journal entries were made in each proprietor's books to adjust accounts and bring balances to zero. The partnership recorded the agreed upon asset and liability amounts. Cash was adjusted for each partner to bring their capital balances to the agreed amount of P400,000. A statement of financial position was prepared for AB Merchandising.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    1K views13 pages

    Partnership Formation

    Uploaded by

    Allen Gonzaga
    A. Cruz and B. Santos have operated hardware businesses individually for years. They decided to form a partnership called AB Merchandising to combine their businesses and avoid competition. Their individual account balances were adjusted to agreed upon values for assets contributed to and liabilities assumed by the partnership. Journal entries were made in each proprietor's books to adjust accounts and bring balances to zero. The partnership recorded the agreed upon asset and liability amounts. Cash was adjusted for each partner to bring their capital balances to the agreed amount of P400,000. A statement of financial position was prepared for AB Merchandising.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    A. Cruz and B.

    Santos individually have been in the hardware business for a number of yea
    to combine their businesses in order to avoid competition since the two entities are located in
    formation of the partnership, A. Cruz and B. Santos had the following account balances in

    A. Cruz B. Santos
    Cash 100,000.00 200,000.00
    Accounts Receivable 50,000.00 100,000.00
    Allowance for Bad debts (10,000.00)
    Inventories 100,000.00 200,000.00
    Land 200,000.00
    Building 400,000.00
    Accumulated Depreciation - Building (100,000.00)
    Furniture and Equipment 30,000.00 60,000.00
    Accumulated Depreciation - F & E (10,000.00) (20,000.00)
    Total Assets 760,000.00 540,000.00

    Accounts Payable 140,000.00 120,000.00


    Accrued Expenses 20,000.00 40,000.00
    Capital 600,000.00 380,000.00
    Total Liabilities and Equity 760,000.00 540,000.00

    A. Cruz and B. Santos agreed to the following conditions for the measurement of assets ro
    the liabilities to be assumed by the partnership.

    1. Assets invested by the partners would be taken over by the partnership at the following

    A. Cruz B. Santos
    Accounts Receivable 30,000.00 80,000.00
    Land 300,000.00
    Building 200,000.00
    Furniture and Equipment 24,000.00
    Inventories 80,000.00 220,000.00

    2. Additional accured expenses of P20,000 in the books of A. Cruz are to be recognized.


    3. Liabilities would be assumed by the partnership.
    4. The partners would contribute or withdraw cash to make their capital equal to P400,000

    Required:
    - Journal entries to record the formation of the new partnership, AB Merchandising
    - A statement of financial position immedately after the partnership formation.
    for a number of years, On January 2, 2021, they decided
    tities are located in a common area. Before the
    count balances in their individual books:

    ement of assets ro be contributed to and

    ip at the following valuation:

    o be recognized.

    equal to P400,000 each.

    chandising
    In the individual books of both A. Cruz and B. Santos:
    1. The respective assets and liabilities shall be adjusted, debiting or crediting directly the capit
    2. All accounts in the individual books shall be brought to zero balances.
    In the new set of books of AB Merchandise:
    1. Assets and liabilities received shall be recorded. The property, plant and equipment account
    according to the agreed values without transferring the accumulated depreciation.
    2. The cash contributed coming from a single proprietorship shall be increased or decreased to
    respective capital balances to the agreed amount. (P400,000.00)

    In the books of A:
    Books Agreed
    Accounts Receivable 50,000.00 50,000.00
    Allowance for Bad Debts (10,000.00) (20,000.00)
    Net 40,000.00 30,000.00

    * A, Capital 10,000.00
    Allowance for Bad Debts 10,000.00

    Allowance for Bad Debts


    10,000.00
    10,000.00
    20,000.00

    Books Agreed
    Land 200,000.00 300,000.00

    Land 100,000.00
    A, Capital 100,000.00

    Land
    200,000.00
    Adj 100,000.00
    300,000.00

    Books Agreed
    Building 400,000.00 400,000.00
    Accumulated Depreciation (100,000.00) (200,000.00)
    Net 300,000.00 200,000.00

    A, Capital 100,000.00
    Accumulated Depreciation - Bldg 100,000.00

    Accumulated Dep'n - Bldg


    100,000.00
    100,000.00
    200,000.00

    Books Agreed
    Furniture & Equipment 30,000.00 30,000.00
    Accumulated Depreciation (10,000.00) (6,000.00)
    Net 20,000.00 24,000.00

    Accumulated Dep'n - F & E


    10,000.00
    Adj 4,000.00
    6,000.00

    Accumulated Dep'n - F & E 4,000.00


    A, Capital 4,000.00

    Books Agreed
    Inventories 100,000.00 80,000.00

    Inventories
    100,000.00
    20,000.00
    80,000.00

    A, Capital 20,000.00
    Inventories 20,000.00

    A, Capital 20,000.00
    Accrued Expense 20,000.00

    2 Allowance for Bad Debts 20,000.00


    Accumulated Depreciation - Bldg 200,000.00
    Accumulated Depreciation - F&E 6,000.00
    Accounts Payable 140,000.00
    Accrued Expenses 40,000.00
    A, Capital 554,000.00
    Cash 100,000.00
    Accounts Receivable 50,000.00
    Inventories 80,000.00
    Land 300,000.00
    Building 400,000.00
    Furniture and Equipment 30,000.00

    NEW SET OF ACCOUNTING BOOKS

    Cash 166,000.00 (300,000 Cash (both) - A withraw


    Accounts Receivable 150,000.00
    Inventories 300,000.00
    Land 300,000.00
    Building 200,000.00 (Cost - Acc dep)
    Furniture and Equipment 64,000.00 (Cost - Accdep)
    Allowance for Bad Debts 40,000.00
    Accounts Payable 260,000.00
    Accrued Expenses 80,000.00
    A, Capital 400,000.00
    B, Capital 400,000.00

    AB Merchandise
    Statement of Financial Position
    As of December 31, 2020

    ASSETS
    Cash 166,000.00
    Accounts Receivable 150,000.00
    Allowance for Bad debts (40,000.00) 110,000.00
    Inventories 300,000.00
    Land 300,000.00
    Building 200,000.00
    Furniture and Equipment 64,000.00
    TOTAL ASSETS 1,140,000.00

    LIABILITIES
    Accounts Payable 260,000.00
    Accrued Expense 80,000.00
    Total Liabilities 340,000.00
    EQUITY
    A, Capital 400,000.00
    B, Capital 400,000.00
    Total Equity 800,000.00

    TOTAL LIABILITIES AND EQUITY 1,140,000.00


    r crediting directly the capital accounts.

    lant and equipment accounts are taken up


    ed depreciation.
    be increased or decreased to bring their

    In the books of B:
    Diff

    (10,000.00)

    B, Capital

    Diff
    100,000.00

    Diff

    (100,000.00)
    Adj

    Diff

    4,000.00

    Diff
    (20,000.00) Inventories

    Inventories

    Allowance for Bad Debts


    Accumulated Depreciation - F & E
    Accounts Payable
    Accrued Expenses
    B, Capital
    000 Cash (both) - A withraw 154,000 + B invest 20,000

    - Acc dep)
    - Accdep)

    554,000.00 154,000.00 withdraw


    380,000.00 20,000.00 invest
    In the books of B:
    Books Agreed
    Accounts Receivable 100,000.00 100,000.00
    Allowance for Bad Debts 0.00 (20,000.00)
    Net 100,000.00 80,000.00

    B, Capital 20,000.00
    Allowance for Bad Debts 20,000.00

    Allowance for Bad Debts


    0.00
    20,000.00
    20,000.00
    Books Agreed Diff
    Inventories 200,000.00 220,000.00 20,000.00

    Inventories
    200,000.00
    20,000.00
    220,000.00

    Inventories 20,000.00
    B, Capital 20,000.00

    Allowance for Bad Debts 20,000.00


    Accumulated Depreciation - F & E 20,000.00
    Accounts Payable 120,000.00
    Accrued Expenses 40,000.00
    B, Capital 380,000.00
    Cash 200,000.00
    Accounts Receivable 100,000.00
    Inventories 220,000.00
    Furniture & Equipment 60,000.00
    Diff

    (20,000.00)

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