LA CONSOLACION UNIVERSITY PHILIPPINES A.F.

ISIP
ACCOUNTING FOR PARTNERSHIP LECTURE NO. 1 – PARTNERSHIP FORMATION

A. Cash Investments

Alejo and Banaria each invests P100,000 cash in a new partnership. What is the entry to record the initial cash
investment?

B. Non-Cash Investments

Assume that Paulo and Jolina form a partnership business for the first time. Their investments are as follows:

Paulo (Fair Value) Jolina (Fair Value)

Cash P70,000
Merchandise inventory (cost, P10,000 P20,000
Computer equipment (cost, P50,000) 30,000
Total P70,000 P50,000

What are the journal entries to record the investments?

C. Bonus or Goodwill on initial investment

1. The partners agree that each of them is to receive equal interest. They agree to use the bonus method.
2. The partners agree that each of them is to receive equal interest. They agree to use the goodwill method.

D. Sole Proprietor and Another Individual Form a partnership

Assume that Jolina has been operating a retail store for a number of years. A statement of financial position on July
1, 2019 is prepared for Jolina Company as follows:

Jolina Company
Statement of Financial Position
July 1, 2019

Assets:
Cash P60,000
Accounts receivable 50,000
Inventory 70,000
Equipment 40,000
Less: Accumulated depreciation 4,000 36,000
Total Assets P216,000

Liabilities and Equity:

Accounts payable P86,000
Jolina, capital 130,000
Total Liabilities and Equity P216,000

Joilina needs additional capital to meet the increasing sales and offers Paulo an interest in the business. Jolina and
Paulo agree to form a partnership business to be known as JP Partnership. Jolina’s business was audited and its net
assets were appraised. The audit and appraisal show the following:
1. Allowance for bad debts for P5,000 is to be provided.
2. Inventory is to be recorded at its market value of P80,000
3. The equipment has a fair value of P35,000
4. P2,000 of accounts payable has been recorded.

Jolina and Pedro signed articles of co-partnership that include all significant operating policies. On July 1, 2019,
Paulo contributes P100,000 cash for a 1/3 capital interest. The JP Partnership is to acquire all of Jolina’s business
and assume its liabilities.

Requirements:

 Prepare journal entries assuming the books of Jolina are to be retained

 Prepare statement of financial position for JP Partnership
 Prepare journal entries assuming new books are to be created for the new partnership.