AC 42 DIY Drill for Unit I 2021-2022

On March 1, 2021, Jhoemarie, Mhayiel, and Ryan, all sole proprietors, agreed to form The Love Triangle Partnership by
pooling together their respective business resources as follows:

Jhoemarie Mhayiel Ryan

Cash P130,000 P170,000 P150,000
Accounts Receivable 100,000 120,000 150,000
Allowance for Doubtful Accounts 15,000 20,000 40,000
Merchandise Inventory 360,000 360,000 400,000
Equipment 540,000 650,000 480,000
Accumulated Depreciation 160,000 180,000 80,000
Accounts Payable 90,000 120,000 40,000

The three agreed on the following adjustments:

1. Accounts that are certain to be uncollectible amounts to P10,000 each for Jhomarie, Mhayiel, and Ryan. New
estimate for the allowance for doubtful accounts amounts to P13,000, P15,000, and P32,000 for Jhoemarie,
Mhayiel, and Ryan, respectively.
2. Fair value of inventories for each of them amounts to 80% of the carrying amount.
3. Equipment fair values amounts to 90% of their carrying amount.

Situation 1: New partnership will use a new set of books.

In the new set of books, upon formation:

1. How much is the total amount debited to Accounts receivable?

2. How much is the total amount credited to Allowance for Doubtful Accounts?
3. How much is the total amount debited to Merchandise Inventory?
4. How much is the total amount debited to Equipment?
5. How much is the total amount credited to Accumulated Depreciation?
6. How much is the total amount credited to Accounts Payable?
7. How much is the total amount credited to Jhoemarie, Capital?
8. How much is the total amount credited to Mhayiel, Capital?
9. How much is the total amount credited to Ryan, Capital?

Situation 2: The partnership will use Ryan’s old set of books

In the books of Ryan, upon formation:

10. How much is the net increase (decrease) in Accounts receivable?

11. How much is the net increase (decrease) in Allowance for Doubtful Accounts?
12. How much is the net increase (decrease) in Merchandise Inventory?
13. How much is the net increase (decrease) in Equipment?
14. How much is the net increase (decrease) in Accumulated Depreciation?
15. How much is the net increase (decrease) in Accounts Payable?
16. How much is the net increase (decrease) in Jhoemarie, Capital?
 17. How much is the net increase (decrease) in Mhayiel, Capital?
18. How much is the net increase (decrease) in Ryan, Capital?

Solution:

SITUATION 1:

As a short cut, you may make use of the following table:

Old Values Agreed Values Total

Jhoemarie Mhayiel Ryan Jhoemarie Mhayiel Ryan
Cash P130,000 P170,000 P150,000 P130,000 P170,000 P150,000 P450,000
Accounts Receivable 100,000 120,000 150,000 90,000 110,000 140,000 340,000
Allowance for Doubtful Accounts 15,000 20,000 40,000 13,000 15,000 32,000 60,000
Merchandise Inventory 360,000 360,000 400,000 288,000 288,000 320,000 896,000
Equipment 540,000 650,000 480,000 342,000 423,000 360,000 1,125,000
Accumulated Depreciation 160,000 180,000 80,000 0 0 0 0
Accounts Payable 90,000 120,000 40,000 90,000 120,000 40,000 250,000
Total P747,000 P856,000 P898,000 P2,501,000

The journal entry is as follows:

Cash 450,000
Accounts Receivable 340,000
Merchandise Inventory 896,000
Equipment 1,125,000
Allowance for Doubtful Accounts 60,000
Accounts Payable 250,000
Jhoemarie, Capital 747,000
Mhayiel, Capital 856,000
Ryan, Capital 898,000

Answers then are as follows:

1. How much is the total amount debited to Accounts receivable? 340,000
2. How much is the total amount credited to Allowance for Doubtful Accounts? 60,000
3. How much is the total amount debited to Merchandise Inventory? 896,000
4. How much is the total amount debited to Equipment? 1,125,000
5. How much is the total amount credited to Accumulated Depreciation? 0
6. How much is the total amount credited to Accounts Payable? 250,000
7. How much is the total amount credited to Jhoemarie, Capital? 747,000
8. How much is the total amount credited to Mhayiel, Capital? 856,000
9. How much is the total amount credited to Ryan, Capital? 898,000
SITUATION 2:

As a shortcut, you may make use of the following table:

Balance Agreed Values Total Net
before Increse
formation (Decrease)
Ryan Jhoemarie Mhayiel Ryan
Cash P150,000 P130,000 P170,000 P150,000 P450,000 300,000
Accounts Receivable 150,000 90,000 110,000 140,000 340,000 190,000
Allowance for Doubtful Accounts 40,000 13,000 15,000 32,000 60,000 20,000
Merchandise Inventory 400,000 288,000 288,000 320,000 896,000 496,000
Equipment 480,000 342,000 423,000 360,000 1,125,000 645,000
Accumulated Depreciation 80,000 0 0 0 0 (80,000)
Accounts Payable 40,000 90,000 120,000 40,000 250,000 210,000
Jhoemarie, Capital 0 747,000 747,000
Mhayiel, Capital 0 856,000 856,000
Ryan, Capital 1,020,000 898,000 (122,000)

Compound entry is as follows:

Cash 300,000
Accounts Receivable 190,000
Merchandise Inventory 496,000
Equipment 645,000
Accumulated Depreciation 80,000
Ryan, Capital 122,000
Allowance for Doubtful Accounts 20,000
Accounts Payable 210,000
Jhoemarie, Capital 747,000
Mhayiel, Capital 856,000

Answers then are as follows:

10. How much is the net increase (decrease) in Accounts receivable? 190,000
11. How much is the net increase (decrease) in Allowance for Doubtful Accounts? 20,000
12. How much is the net increase (decrease) in Merchandise Inventory? 496,000
13. How much is the net increase (decrease) in Equipment? 645,000
14. How much is the net increase (decrease) in Accumulated Depreciation? (80,000)
15. How much is the net increase (decrease) in Accounts Payable? 210,000
16. How much is the net increase (decrease) in Jhoemarie, Capital? 747,000
17. How much is the net increase (decrease) in Mhayiel, Capital? 856,000
18. How much is the net increase (decrease) in Ryan, Capital? (122,000)