A and B formed a partnership by contributing the following assets:

A B
Cash 170,000 -
Land - 220,000
Building - 320,000
Equipment 100,000 -

It was agreed that the equipment shall be valued at P120,000. The land has an appraised value of
P220,000 but is agreed to be taken at its zonal value of P200,000. The land and building is subject
to a P100,000 real estate mortgage which is assumed by the partnership. The mortgage also has
an accrued interest of P10,000 that is to be assumed by B. Included in the cash balance are highly
liquid investments booked at P40,000 but with current fair value of P50,000. A and B shall share
in profits 50:50.
PSR
1. Journalize the transactions and determine the capital balances of the partners.
2. Journalize the adjustments if A and B agreed to share in the capital 40:60, respectively, using
the following methods:
a. Bonus method
b. Goodwill method CCR
c. Personal cash settlement 42%
d. Settlement by cash investment 58%
e. Settlement by cash withdrawal
A's Contribution
Cash 130,000
Equipment 120,000
FVTPL 50,000
A, Capital 300,000

B's Contribution
Land 200,000
Building 320,000
Mortgage payable 100,000
B, Capital 420,000

a.) CC = AC ACR
CC Entry AC % Capital
A 300,000 - 12,000 288,000 40%
B 420,000 12,000 432,000 60%
720,000 - 720,000 100%

A, Capital 12,000
B, Capital 12,000

b.) CC < AC
CC Entry AC % Capital Gross-up (100%)
A 300,000 - 300,000 40% 750,000 Higher
B 420,000 30,000 450,000 60% 700,000
720,000 30,000 750,000 100%

Goodwill 30,000
B, Capital 30,000

c.) CC = AC; refer to item a.)

A, Capital 12,000
B, Capital 12,000
B to pay A P12,000 on his personal account

d.) CC < AC
CC Entry AC % Capital Gross-up (100%)
A 300,000 - 300,000 40% 750,000
B 420,000 30,000 450,000 60% 700,000
720,000 30,000 750,000 100%
Cash 30,000
B, Capital 30,000

e.) CC > AC
CC Entry AC % Capital Gross-up (100%)
A 300,000 - 20,000 280,000 40% 750,000
B 420,000 - 420,000 60% 700,000
720,000 - 20,000 700,000 100%

A, Capital 20,000
Cash 20,000
On October 1, 2014, J and K decided to pool their assets and form a partnership. They allocate profit and loss in the
ratio of 44:56 for them, respectively. The firm is to take over business assets and assume business liabilities, and
capitals are to be based on net assets transferred after the following adjustments:

a. J's inventory amounting to P10,000 is worthless, while K's agreed value of inventory amounted to P125,000.
b. Uncollectible accounts of P6,000 for J is to be provided; a 5% allowance is to be recognized in the books of K.
c. Accrued rent income of P10,000 on J and accrued salaries of P8,000 on K should be recognized.
d. Interest at 16% on notes receivable dated August 17, 2014 should be accrued.
e. The office supplies unused amounted to P20,000.
f. The equipment's agreed value amounted to P50,000.
g. The furniture and fixtures has a fair market value of P90,000.
h. Interest at 12% on notes payable dated July 1, 2014 should be accrued. Use 360 days a year.
i. K has an unrecorded patent amounting to P40,000 and is to invest the additional cash necessary to have a 60%
interest in the new firm.

Balance sheets for J and K on October 1, 2014 before adjustments are given below:
Accounts J K
Cash 75,000 45,000
Accounts receivable 180,000 150,000
Allowance for doubtful accounts - 4,000 - 5,000
Notes receivable - 50,000
Merchandise inventory 160,000 120,000
Office supplies 27,000 -
Equipment 100,000 - CA of Equipment 55,000
Accumulated depreciation - equipment - 45,000 -
Furniture and fixtures - 120,000 CA of F&F 100,000
Accumulated depreciation - furniture and fixtu - - 20,000
Total assets 493,000 460,000

Accounts payable 133,000 100,000

Notes payable 50,000 -
Capital accounts 310,000 360,000
Total liabilities and capital 493,000 460,000

Prepare the journal entries to record the transactions and prepare the balance sheet of the newly created
partnership.

J K Partnership Reporting entity

Statement of Financial Position Name of the statement
As of October 1, 2014 Reporting period/period covered

Total Assets
Cash 170,250
Accounts receivable, net 312,500
Notes receivable 50,000
Merchandise inventory 275,000
Office supplies 20,000
Accrued rent receivable 10,000
Accrued interest receivable 1,000
Equipment, net 50,000
Furniture and fixtures, net 90,000
Patent 40,000
1,018,750

Total Liabilities and Capital

Accounts payable 233,000
Notes payable 50,000
Accrued interest payable 1,500
Accrued salaries payable 8,000
Total Liabilities 292,500

J, Capital 290,500
K, Capital 435,750
Total Capital 726,250
Total Liabilities and Capital 1,018,750
e profit and loss in the
ness liabilities, and

J's Adjustments K's Adjustments

ted to P125,000. a. J, Capital 10,000 Merchandis 5,000
in the books of K. Merchandise inventor 10,000 K, Capital 5,000

b. J, Capital 6,000 K, Capital 2,500 Required ADA

Allowance for doubtfu 6,000 Allowance for doubtfu 2,500 ADA balance
Additional ADA
c. Accrued re 10,000 K, Capital 8,000
J, Capital 10,000 Accrued salaries paya 8,000
sary to have a 60%
d. Accrued in 1,000
K, Capital 1,000

e. J, Capital 7,000
Office supplies 7,000

f. J, Capital 5,000
Accumulated deprecia 5,000

g. K, Capital 10,000
Accumulated depreciat 10,000

h. J, Capital 1,500
Accrued interest paya 1,500

i. Patent 40,000
K, Capital 40,000

Adjusted Capital 290,500 Adjusted Capital 385,500

To journalize the contribution:

ewly created
Cash 75,000 Cash 45,000
Accounts r 180,000 Accounts r 150,000
Merchandis 150,000 Notes rece 50,000
Office supp 20,000 Merchandis 125,000
Equipment 100,000 Furniture a 120,000
Accrued re 10,000 Accrued in 1,000
Allowance for doubtfu 10,000 Patent 40,000
Accumulated deprecia 50,000 Allowance for doubtfu 7,500
Accounts payable 133,000 Accumulated depreciat 30,000
Notes payable 50,000 Accounts payable 100,000
Accrued interest paya 1,500 Accrued salaries paya 8,000
J, Capital 290,500 K, Capital 385,500

CC Entry AC % Capital Gross up (100%)

43% J 290,500 - 290,500 40% 726,250 Higher
57% K 385,500 50,250 435,750 60% 642,500
676,000 50,250 726,250 100%

Cash 50,250
K, Capital 50,250
 AR balance Agreed %
7,500 =150,000 x 5%
- 5,000
2,500