BM1705

Para: DATE: SCORE:

Luman:
Bobby:
Cobby:

Investments of Partners (14 points)

On April 15, 20AB, Para and Luman formed a partnership with the following investments:

PARA LUMAN
Cash P 55,000
Furniture 66,000
Equipment P 192,500

The market values of the non-cash assets were P44,000 for the furniture and P165,000 for the equipment. Para
and Luman’s profit and loss sharing ratio is 1:3, respectively.

Requirements:
1. If the capital of each partner is based on his/her contributions, give the entry to record the partnership
formation (5 points: 1 point for each correct amount and account used).
2. If the partners agree that their capital should be equal so that the partner with the lower capital will make
additional cash investment, who will make the investment and how much? (3 points)
3. Assuming that Luman’s agreed capital is P275,000, how much cash investment must he make? (3
points)
4. Assuming that Para’s investment is equal to 30% of the total capital, how much additional investment
should Luman make? (3 points)

Partnership Formation ()

Bobby and Cobby agreed to combine their businesses and form a partnership. The ledger accounts prior to
adjustments showed the following balances:

BOBBY COBBY
Cash P 84,000 P 126,000
Accounts Receivable 63,000 105,000
Inventory 157,500 52,500
Equipment 63,000
Accumulated Depreciation (21,000)
Accounts Payable (21,000)

The following adjustments are to be made for the purposes of establishing the capital credit of the partners:
1. Ten percent (10%) bad debts (impairment loss) should be provided on the outstanding accounts
receivable.
2. The market value of the inventory is 80% of cost.
3. The carrying amount of the equipment is only P33,600.
4. Bobby will recognize prepaid expenses of P8,400.
5. Cobby will recognize accrued expenses of P6,825.

Give all the entries necessary for the following scenarios:

a. Books of Bobby will be used (30 points: 1 point for each correct amount and account used).
b. Books of Cobby will be used (28 points: 1 point for each correct amount and account used).
c. New set of books will be used by the partnership (40 points: 1 point for each correct amount and
account used).
Reference:
Abeleda, N. S. (2012). Simplified accounting for partnership and corporation. Paranaque: Nelson Publications.

06 Activity 1 *Property of STI

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