ACC 121C- Financial Accounting & Reporting II

DRILLS (Partnership Formation)

NAME: Score:
Professor: Vergil Joseph I. Literal, DBA, CPA Course/Yr/Sec: Date:

Drill 1 (7 marks)
Han Daewi contributed land, inventory, and P280,000 cash to a partnership. The land has a book
value of P650,000 and market value of P1,350,000. The inventory has a book value of P600,000 and
a market value of P510,000. The partnership also assumed a P350,000 note payable owed by Han
Daewi that was used to purchase the land. Yu Mira agreed to put up cash equivalent to Han Daewi’’s
net investment.

Required: Prepare the journal entry to record Han Daewi’s and Yu Mira’s investment in the
partnership.

Solution:

Cash 280,000
Land 1,350,000
Merchandise Inventory 510,000
Note Payable 350,000
Han Daewi, Capital 1,790,000
To record the investment of Han Daewi.

Cash 1,790,000
Yu Mira, Capital 1,790,000
To record the investment of Yu Mira.

Drill 2 (26 marks)

On April 8, 2020, Jin Mori who has his own retail business and and Park Ilpyo, decided to form a
partnership to be named “GOH Commercial Trading” wherein they will divide profits in the ratio of
40:60, respectively. The statement of financial position of Jin Mori is as follows:
Jin Mori Marketing
Statement of Financial Position
April 8, 2020

Assets
Cash P4,000
Accounts Receivable P160,000
Less: Allowance for Uncollectible Accounts (16,000) 144,000
Inventory 200,000
Equipment P50,000
Less: Accumulated Depreciation (10,000) 40,000
Total Assets P388,000

Liabilities and Owner’s Equity

Accounts Payable P36,000
Jin Mori, Capital 352,000
Total Liabilities and Owner’s Equity P388,000

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 ACC 121C- Financial Accounting & Reporting II

Conditions agreed upon before the formation of the partnership:

a. The accounts receivable of Jin Mori is estimated to be 70% realizable.
b. The accumulated depreciation of the equipment will be increased by P10,000.
c. The accounts payable will be assumed by the partnership.
d. The capital of the partnership is based on the adjusted capital balance of Jin Mori. Park Ilpyo
is to contribute cash in order to make the partner’s capital balances proportionate to the
profit and loss ratio.

Required:
1. Prepare the necessary journal entries in the books of Jin Mori. (11 marks)
2. Prepare the opening entries in the books of the partnership. (9 marks)
3. Prepare the statement of financial position of the partnership upon formation. (6 marks)

Req’m 1: Books of Jin Mori

2020
Apr. 8 Jin Mori, Capital 42,000
Allowance for Uncollectible Accounts (P48,000-P16,000) 32,000
Accumulated Depreciation-Equipment 10,000
To adjust the books of Jin Mori.

Allowance for Uncollectible Accounts 48,000

Accumulated Depreciation-Equipment 20,000
Accounts Payable 36,000
Jin Mori, Capital 310,000
Cash 4,000
Accounts Receivable 160,000
Merchandise Inventory 200,000
Equipment 50,000
To close the books of Jin Mori.

Req’m 2: Books of Partnership

2020
Apr. 8 Cash 4,000
Accounts Receivable 160,000
Merchandise Inventory 200,000
Equipment 30,000
Allowance for Uncollectible Accounts 48,000
Accounts Payable 36,000
Jin Mori, Capital 310,000
To record the investment of Jin Mori.

Cash* 465,000
Park Ilpyo, Capital 465,000
To record the investment of Park Ilpyo.

*Computation of Investment by Park Ilpyo:

Capital of Jin Mori (base) P310,000
÷ by P/L Ratio for Jin Mori 40%
Total Agreed Capital P775,000
x P/L Ratio for Park Ilpyo 60%
Cash to be invested by Park Ilpyo P465,000*

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 ACC 121C- Financial Accounting & Reporting II

Req’m 3: Statement of Financial Position

GOH Commercial Trading
Statement of Financial Position
April 8, 2020

Assets
Cash P469,000
Accounts Receivable P160,000
Less: Allowance for Uncollectible Accounts (48,000) 112,000
Merchandise Inventory 200,000
Equipment 30,000
Total Assets P811,000

Liabilities and Partners’ Equity

Accounts Payable 36,000
Jin Mori, Capital 310,000
Park Ilpyo, Capital 465,000
Total Liabilities and Partners’ Equity P811,000

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