Activity 1.1 PDF

Activity 1.
Direction: Provide what is asked.
A. The statement of financial position of Pedro Castro on October 1, 2016 before accepting Pablo Bunag as his partner is shown
below:
Pedro Castro
Statement of Financial Position
October 1, 2016
Assets
Cash P 6,000
Notes receivable 3,000
Accounts receivable P 24,000
Less: Allowance for bad debts 1,000 23,000
Merchandise inventory 8,000
Furniture and Fixture 6,000
Less: Accumulated depreciation 600 5,400
Total Assets P 45,400
Liabilities and Equity

Notes payable P 4,000
Accounts payable 10,000
Pedro Castro, capital 31,400
Total Liabilities and Equity P 45,400
Pablo Bunag offers to invest cash to give him a capital credit equal to one-half (1/2) of Pedro Castro’s capital after giving effect to the
adjustment of the items below. Pedro Castro accepts the offer.
a. The merchandise is to be valued at P 7,400.
b. The accounts receivable is estimated to be 95% realizable
c. Interest accrued on the notes receivable enumerated below is to be reflected.
P 1,000, 6% dated July 1, 2016.
P 2,000, 6% dated August 1, 2016.
d. Interest accrued at 5% annually from April 1, 2016 on the notes payable is to be recorded.
e. The furniture and fixtures is to be valued at P 4,600.
f. Office supplies on hand which have been charged to expense in the past amounted to P 400. These are still to be used by the
partnership.
Required:
1. Prepare the necessary journal entries in all of the books to record the formation of the partnership if:
a. The books of Pedro Castro will be retained by the partnership.
b. A new set of books will be used.
2. Prepare the statement of financial position of the partnership.
B. Short Problems
For items 1-2.

On June 30, 2016 Eden and Flora formed a partnership with each contributing the following assets:
Eden Flora
Book Value Fair Value Book Value Fair Value
Cash P 375,000 P 375,000 P 875,000 P 875,000
Office Equipment 350,000 312,000 872,500 937,500
Building –net 3,262,500 2,812,500
Furniture and Fixtures 95,000 125,000
The building is subject to a mortgage loan of P 1,125,000 which is to be assumed by the partnership. The partnership agreement
provides that Eden and Flora share profits and losses in the ratio of 30% and 70% respectively. Assuming that the partners agreed to
bring their respective capital in proportion to their profit or loss ratio, and using Flora capital as the base:
1. What is the capital account balance of Flora on June 30, 2016? __________________
2. How much is the additional cash to be invested by Eden? ________________
3. Loren and Jamby decide to combine their businesses and form a partnership on July 1, 2016. The following are their assets
and liabilities on July 1, 2016 before formation:
Loren Jamby
Assets P 210,750 P 103,000
Liabilities 91,500 36,000
The following agreements are made to adjusts assets and liabilities:

a. Both partners will provide P 5,000 allowance for doubtful accounts.
b. Loren’s fixed assets were over-depreciated by P 1,000 and Jamby’s fixed assets were under-depreciated by P500.
c. Accrued expenses are to be recognized in the books of Loren and Jamby in the amount of P 1,200 and P 1,00,
respectively.
d. Obsolete inventory to be written off by Loren amounts to P 3,500.
e. Loren and Jamby also agreed to share profits and losses equally.
What is the total asset of the partnership after the formation? ________________
For items 4 -5.

On June 1, 2016, May and Nora formed a partnership. May is to invest assets at fair values. She is to transfer her liabilities and is to
contribute sufficient cash to bring her total capital to P 210,000 which is 70% of the total capital of the partnership. Details regarding the
book values of May’s business assets and liabilities and their corresponding fair values are:
Book Values Fair values

Accounts receivable (net) P 53,800 P 53,000
Inventory 98,400 107,000
Equipment 25,800 34,000
Notes payable 56,000 56,000
Nora agrees to invest cash of P 42,000 and merchandise valued at current market price.
4. What is the value of the merchandise to be invested by Nora? ______________

5. What is the amount of cash invested by May? _____________

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Activity 1.

Direction: Provide what is asked.

Liabilities and Equity

For items 1-2.

The following agreements are made to adjusts assets and liabilities:

For items 4 -5.

Book Values Fair values

4. What is the value of the merchandise to be invested by Nora? ______________

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