Mulles,the owner of a successful fertilizer business, felt that it is time to expand operations.

Mulles
offered to form a partnership with Lucena, the owner of a nearby warehouse. The Partnership would be
called Mulles & Lucena Storage and Sales. Lucena accepted Mulles' offer and the Partnership was formed
on July 1, 2011.

Presented below is the trial balance for Mulles Fertiizer Supply on June 30,2011:

Cash........................P 229, 500

Accounts Receivable P2,103,000
Allowance for Uncollectible Accounts P117,000
Inventory..................P1,012,500
Prepaid Rent............P29,250
Store Equipment......P390,000
Accumulated Depreciation..P97,500
Notes payable.............P330,000

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Accounts payable........P505,500

er as
Mulles,Capital.............P2,714,250

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totals....P3,764,250.....P3,764,250

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The partners agreed to share profits and looses equally and decided to invest an equal amount in the
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partnership. Lucena and Mulles agreed that Lucena's land is worth P500,000 and his Building
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P1,450,000.Lucena is to contribute cash in an amount sufficient to make his capital account balance
equal to Mulles.
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An agreement is reached by the two partners on the following terms:

aC s
vi y re

a. The accounts receivable are to be valued at P1,799,000 and the allowance for uncollectible accounts
will be eliminated.
b. Inventory is to be decreased by P112,500.
c. The prepaid rent is for the warehouse used by Mulles. All merchandise will be transferred to Lucena's
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building. No refund will be received on the unused rent paid in advance.

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d. The store equipment has a fair value of P300,000.

e. A the other assets and liabilities are to be transferred at their book values.
is

1. Prepare the necessary journal entries in the books of Mulles.

a. The accounts receivable are to be valued at P1,799,000 and the allowance for uncollectible accounts
Th

will be eliminated.
P2,103,000 - 1,799,000 = 304,000 A/R adjustment
Dr Mulles, Capital 304,000
sh

Cr Accounts Receivable 304,000

Allowance account adjustment

Dr Allowance for Doubtful Accounts 117,000
Cr Mulles, Capital 117,000

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 b. Inventory is to be decreased by P112,500.
Dr Mulles, Capital 112,500
Cr Inventory 112,500

c. The prepaid rent is for the warehouse used by Mulles. All merchandise will be transferred to Lucena's
building. No refund will be received on the unused rent paid in advance.
Dr Mulles, Capital 29,250
Cr Prepaid Rent 29,250

d. The store equipment has a fair value of P300,000.

390,000 - 300,000 = 90,000 adjustment
Dr Mulles, Capital 90,000
Cr Store Equipment 90,000

Accumulated Depreciation Adjustment

m
Dr Accumulated Depreciation 97,500

er as
Cr Mulles, Capital 97,500

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e. A the other assets and liabilities are to be transferred at their book values.

o.
No entries necessary.
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2. Prepare the opening journal entries in the books of the partnership and record the formation of the
partnership in a new set of books.
Dr Cash 229,500
o

Dr Accounts Receivable 1,799,000

aC s

Dr Inventory 900,000
vi y re

Dr Store Equipment 300,000

Cr Notes payable 330,000
Cr Accounts payable 505,500
Cr Mulles,Capital 2,393,000
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ar stu

2,393,000 - 500,000 - 1,450,000 = 443,000 cash to be contributed by Lucena

Dr Cash 443,000
Dr Building 1,450,000
is

Dr Land 500,000
Cr Lucena, Capital 2,393,000
Th
sh

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