PARTNERSHIP FORMATION 2.

Land (at FMV) 1,300,000

Mortgage 300,000
J.Java Capital 1,000,000
Cash Investments

Cash investments in accordance with the current standards being a financial asset are A SOLE PRORIETOR AND AN INDIVIDUAL WITHOUT EXISTING BUSINESS FROM A
recorded at fair value most often known as fair value as far as cash valuation is concerned. PARTNESHIP
Cash denominated in foreign currency is valued at the current exchanges rate. The statement of financial position of Leopoldo Medina on October 1, 2019, before
accepting Challoner Matero as partners is shown below:
Noncash Investments
Leopoldo Medina
Noncash property is recorded at the agreed value which is normally the fair value of the
Statement of Financial Position
property at the time of investment.
October 1, 2019
It should be noted that in case there is a conflict between agreed value and fair value, agreed ASSETS LIABILITIES AND EQUITY
value prevails. Cash P60,000 Notes Payable P40,000
Notes Receivable 30,000 Accounts Payable 100,000
Services Accounts receivable 240,000 Leopoldo Medina, Capital 314,000
Allowance for uncollected (10,000)
Once services are contributed to the partnership, a memorandum entry is essential if it were accounts
no value agreed upon, otherwise a journal entry would be required. Merchandise inventory 80,000
Furniture and fixtures 60,000
Liabilities
Acc. Depreciation (6,000)
Liabilities assumed by the partnership should e valued at the present value (fair value) of the TOTAL ASSETS P454,000 TOTAL LIABILITIES AND P454,000
EQUITY
remaining cash flows.

Challoner Matero offered to invest cash to get a capital credit equal to one-half of
A partnership may be formed in any of the following ways: the Leopoldo Medina’s capital after giving effect to the adjustment below. Medina accepted
the offer.
1. Individuals with no existing business formed a partnership.
2. A sole proprietor and an individual without existing business form a partnership. 1. Merchandise inventory is to be valued at 74,000
3. Two or more sole proprietorship formed a partnership. 2. The account receivable is 95% collectible.
4. Admission or retirement of a partner. 3. Interest accrued on the note receivable will be recognized 10,000, 12% dated July 1
2019 and 20,000, 12% dated August 1, 2019.
4. Interest on notes payable to be accrued at 14% annually from April 1, 2019.
5. The furniture and fixtures are to be valued at 46,000.
INDIVIDUALS WITH NO EXISTING BUSINESS FORMED A PARTNERSHIP
6. Office supplies on hand that have been charged to expense in the past amounted
On July 1, 2019, Gerry Fernando and Joanne Java agreed to form a partnership. The to 4,000. These will be used by the partnership.
partnership agreement specified that Fernando is to invest cash of P700,000 and Java is to
Required: Prepare the journal entries to record the formation of the partnership.
contribute land with a fair market value of P1,300,000 with P300,000 mortgage to be
assumed by the partnership. Gains, losses, income and expenses adjustments will be reflected directly to
CAPITAL ACCOUNT.
Required: Prepare the journal entries to record the formation of the partnership.
1. Medina Capital 6,000
1. Cash 700,000
G. Fernando Capital 700,000 Inventory (80,000-74,000) 6,000
2. 5% uncollectible
Allowance for uncollectible account (5% x 240,000) 12,000
Allowance for uncollectible account (as per SFP) 10,000
Adjustment 2,000

Medina, Capital 2,000

AFUA 2,000

3. Interest (10,000 x 10% x 3/12) jul-oct 300

Interest (20,000 x 12% x 2/12) aug-oct 400
700

Interest receivable 700

Medina Capital 700

4. Interest (40,000 x 14% x 6/12) apr-oct 2,800

Medina Capital 2,800

Interest Payable 2,800

5. Carrying amount of F&F (60,000 – 6,000) 54,000

Valued agreed 46,000
Adjustment 8,000

Medina Capital 8,000

Acc. Depreciation F&F 8,000

6. Office supplies 4,000

Medina Capital 4,000