Problem 2

Irene and Mae are partners sharing profit and losses in the ration of 1:2 respectively. On July 1 2020
they decided to form the I and M Corporation by transferring the assets and liabilities from the
partnership to the corporation in exchange of its shares. The following is the post-closing trial balance of
the partnership:
Debit Credit
Cash 45,000
AR 60,000
Inventory 90,000
Fixed Assets 174,000
Liabilities 60,000
Irene, Capital 94,800
Mae, Capital 214,200
It was agreed that adjustments be made to the following assets to be transferred to the corporation:
AR 40,000
Inventory 68,000
Fixed Assets 180,600
The I and M Corporation was authorized to issue 100 par preference shares and 10 par ordinary share.
Irene and Mae agreed to receive for their equity in the partnership 720 ordinary share each, plus even
multiples of 10 shares for their remaining interest.
a. Compute for the total number of shares of preference and ordinary share issued by the
corporation in exchange of the assets and liabilities of the partnership.

Computation:
Assets
Cash P 45,000
Accounts Receivable 40,000
Inventory 68,000
Property and Equipment 180,600
Total Assets 333,600
Less: Liabilities (60,000)
Amount to be paid 273,600

Value of Equity shares to be issued to each partner = 720 x 10 = 7, 200

Total amount paid in form of equity shares = 7,200 x 2 = 14,400
Amount to be paid in form of preference shares = 273,600 – 14,400 = 259,200
Total No. of preference shares to be issued = 259,200 / 100 = 2592 shares