Activity No.

1: Partnership Formation

KIT and CHAN formed a partnership on January 2, 2020 by contributing the

following net assets from their respective proprietorships:

KIT CHAN
Cash ₱ 30,000 ₱ 20,000
Non-cash assets 620,000 730,000
Liabilities (450,000) (530,000)
Net assets ₱ 200,000 ₱ 220,000

The non-cash assets of KIT is overstated by ₱ 24,500 while that of CHAN is

understated by ₱ 5,500. They agreed on an interest/capital ratio of 48:52 to KIT and
CHAN, respectively.

Requirement:
Journalize the formation of the partnership.

The non-cash assets of KIT is overstated by ₱ 24,500 while that of CHAN is

understated by ₱ 5,500. They agreed on an interest/capital ratio of 48:52 to KIT and
CHAN, respectively.

Kit, Capital 24,500

Non-cash assets 24,500
To record the overstated non-cash assets of KIT’s investments.

Non-cash assets 5,500

Chan, Capital 5,500
To record the understated non-cash assets CHAN’s investments.

The entry to record the investment of the partners is as follows:

Cash 401,000
Kit, Capital 175,500
Chan, Capital 225,500

They agreed on an interest/capital ratio of 48:52 to KIT and CHAN, respectively.

Under the bonus approach, the only journal entry necessary to meet the agreement of Kit
and Chan to have a 48:52 interest/capital ratio, respectively, follow:

Chan, Capital 16,980