PARTNERSHIP FORMATION PROBLEM 6: FOR CLASSROOM

DISCUSSION
Valuation of Contribution of Partners
1. REQUIREMENT: Provide the journal entry to record partner’s contributions.
MR. SUN MS. MOON PARTNERSHIP
Cash 400,000 400,000
Accounts Receivable 200,000 200,000
Land 1,000,000 1,000,000
Equipment 150,000 150,000
TOTAL 600,000 1,150,000 1,750,000
Mortgage Payable- Land (250,000) (250,000)
ADJUSTED CAPITAL 600,000 900,000 1,500,000
BALANCE

JOURNAL ENTRY:

DEBIT CREDIT
Cash 400,000
Accounts Receivable 200,000
Land 1,000,000
Equipment 150,000
Mortgage Payable 250,000
Mr. Sun, Capital 600,000
Ms. Moon, Capital 900,000

2. REQUIREMENT: Which partner should make an additional contribution and by how much?

Mr. Sun, Capital 600,00 Ms. Moon, Capital 900,00

Divided by: Profit (loss) sharing 50% Divided by: Profit (loss) sharing 50%
ratio of Mr. Sun ratio of Ms. Moon
Total 1,200,000 Total 1,800,000
Multiply by: : Profit (loss) sharing 50% Multiply by: : Profit (loss) sharing 50%
ratio of Ms. Moon ratio of Mr. Sun
Minimum Capital Requirement for 600,000 Minimum Capital Requirement for 900,000
Ms. Moon Mr. Sun
Ms. Moon, Capital 900,000 Mr. Sun, Capital 600,000
Deficiency in Ms. Moon’s --- Deficiency in Mr. Sun’s Capital 300,000
Capital Contribution Contribution

ANSWER: Mr. Sun should make an additional

contribution of 300,000 to make his contribution proportionate to his profit-sharing ratio.
Bonus on Initial Investment
3. REQUIREMENT: Provide the journal entry to record the partner’s contributions.
 MR. SUN MS. MOON PARTNERSHIP
Cash 400,000 400,000
Accounts Receivable 200,000 200,000
Land 1,000,000 1,000,000
Equipment 150,000 150,000
TOTAL 600,000 1,150,000 1,750,000
Mortgage Payable- Land (250,000) (250,000)
ADJUSTED CAPITAL 750,000 750,000 1,500,000
BALANCE

JOURNAL ENTRY:

DEBIT CREDIT
Cash 400,000
Accounts Receivable 200,000
Land 1,000,000
Equipment 150,000
Mortgage Payable 250,000 Variation to Bonus
Mr. Sun, Capital 750,000 Method- cash settlement
Ms. Moon, Capital 750,000 between partners
4. REQUIREMENTS:
A. Provide the compound journal entry to record the partner’s contributions.
B. Provide the simple journal entries to record the partner’s contributions.

MR. SUN MS. MOON PARTNERSHIP

Cash 400,000 400,000
Accounts Receivable 200,000 200,000
Land 1,000,000 1,000,000
Equipment 150,000 150,000
TOTAL 600,000 1,150,000 1,750,000
Mortgage Payable- Land (250,000) (250,000)
ADJUSTED CAPITAL 750,000 750,000 1,500,000
BALANCE
CASH (150,000) 150,000
RECEIPT/(PAYMENT)

Mr. Sun pays Ms. Moon 150,000. This is not recorded in the partnership books

A. COMPOUND JOURNAL ENTRY

DEBIT CREDIT
Cash 400,000
Accounts Receivable 200,000
Land 1,000,000
Equipment 150,000
Mortgage Payable 250,000
Mr. Sun, Capital 750,000
Ms. Moon, Capital 750,000
 B. SIMPLE JOURNAL ENTRY
Mr. Sun Contributions:

DEBIT CREDIT

Cash 400,000
Accounts Receivable 200,000
Mr. Sun, Capital 600,000

Ms. Moon Contributions:

DEBIT CREDIT

Land 1,000,000
Equipment 150,000
Mortgage Payable 250,000
Ms. Moon, Capital 900,000

Entry to equalize capital of Moon and Sun:

DEBIT CREDIT

Ms. Moon, Capital 150,000

Mr. Sun, Capital 150,000

Variation to Bonus Method- additional investment/withdrawal

5. REQUIREMENTS: Which partner shall make an additional investment and which partner shall
withdraw part of his/her investment?

MR. SUN MS. MOON PARTNERSHIP

Cash 400,000 400,000
Accounts Receivable 200,000 200,000
Land 1,000,000 1,000,000
Equipment 150,000 150,000
TOTAL 600,000 1,150,000 1,750,000
Mortgage Payable- Land (250,000) (250,000)
ADJUSTED CAPITAL 750,000 750,000 1,500,000
BALANCE
CASH (150,000) 150,000
RECEIPT/(PAYMENT)

ANSWER: Mr. Sun should invest an additional of 150,000, while Ms. Moon shall withdraw 150,000.