Two Sole Proprietors Form a Partnership

Instructions:
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The business assets of Geron and Yumol appear below:

Geron Yumol

Cash P211,000 P222,354

Accounts Receivable 264,536 587,890
Allowance for bad debts (30,000) (20,000)
Inventories 120,035 260,102
Land 603,000 -
Building - 528,267
Accumulated depreciation- Building (100,000)
Furniture and Fixtures 60,345 49,789
Accumulated depreciation – F & F (10,000) (15,000)
Other Assets 2,000 3,600
Total P1,220,916 P1,517,002

Account Payable P 178,490 P 243,650

Notes Payable 200,000 345,000
Geron,Capital 842,426 -
Yumol, Capital - 928,352
Total P1,220,916 P1,517,002

Geron and Yumol agreed to form a partnership contributing their assets and equities subject to
the following adjsutments:
a. Accounts receivable are 90% net realizable.
b. Inventories of Geron is understated by P5,500, but Yumol’s is overstated by P6,700.
c. Land has an appraised value of P700,000 at the date of formation
d. Building should be valued at P300,000.
e. Furniture and Fixtures have a NRV of 75% of its original cost
f. Prepaid advertising of P5,000 should be recognized in Geron’s books
g. Accrued utilities expense of P4,000 should be recognized by Yumol
h. Deferred service revenue amounting to P7,500 should be recorded in Geron’s books
i. Other assets of P2,000 for Geron and P3,600 for Yumol are to be written off.
j. The partners agreed on a 40:60 P and L ratio. Partner’s capital balances should equal P
and L ratio. Bonus method was agreed by the partners.

Required:
1) Adjusting entries in the Books of Geron and Yumol
2) Closing entries in the books of Geron and Yumol
3) Prepare the journal entries for the formation of the partnership in the partnership
books
4) Prepare a Balance Sheet as of February 1, 2021, the date of formation