CHO ADJUSTMENT ADJUSTED LEAH ADJUSTMENT ADJUSTED TOTAL

BALANCE BALANCE
ASSETS
Cash 50,000 - 50,000 30,000 - 30,000 80,000
Accounts receivable 100,000 (20,000) 80,000 110,000 - 110,000 190,000
Inventories 75,000 15,000 90,000 85,000 (15,000) 70,000 160,000
Equipment 250,000 - 250,000 300,000 50,000 350,000 600,000
Accum. Depr’n (185,000) - (185,000) (100,000) (100,000) (285,000)
Equipment
TOTAL ASSETS 290,000 (5000) 285,000 425,000 35,000 460,000 745,000
LIABILITIES AND
EQUITY
Accounts Payable 65,000 5,000 70,000 75,000 75,000 145,000
Accrued expenses 55,000 - 55,000 90,000 10,000 100,000 155,000
Notes Payable 80,000 - 80,000 100,000 (100,000) - 80,000
Capital 90,000 (10,000) 80,000 160,000 285,000 365,000
TOTAL 290,000 (5000) 285,000 425,000 460,000 745,000
LIABILITIES&EQUIT
Y

1. How much is the adjusted capital balance of LEAH upon formation?

ANSWER: LEAH

CASH 30,000 75,000 A/P

A/R 110,000 100,000 ACCRUED EXPENSES
INVENTORIES 70,000
EQUIPMENT 250,000

460,000 175,000

285, 000

2. How much is the capital credit to CHO upon formation?

ANSWER: CHO CHO CAPITAL – 80,000
CASH 50,000 70,000 A/P LEAH CAPITAL - 285,000
A/R 80,000 55,000 ACCRUED EXPENSES 365,000 X .75 = 273,750
INVENTORIES 90,000 80,000
EQUIPMENT 65,000

285,000 2055,000

80, 000

3. How much should CHO invest as additional cash to be in conformity with their initial capital agreement?

CHO CAPITAL – 80,000

 LEAH CAPITAL - 285,000
365,000 X .75 = 273,750
CHO CAPITAL (80,000)
193, 750

2. RALPH and RECTO enters into a partnership agreement in which RALPH is to have 55% interest in the partnership and
35% in the profits and losses, while RECTO will have 45% interest in the partnership and 65% in the profits and
losses. RALPH contributed the following:

Cost Fair value

Building 235,000 255,000
Equipment 168,000 156,000
Land 500,000 525,000

The building and the equipment has a mortgage of 50,000 and 35,000 respectively. RECTO is to contribute 150,000 cash
and equipment. The partners agreed that only the building mortgage will be assumed by the partnership.

a. How much is the fair market value of the equipment which RECTO contributed?

b. How much is the total asset of the partnership upon formation?

a. Solution
Building 255,000
Equipment 156,000
Land 525,000

936,000
(50,000) Building mortgage

886,000 ÷ 55% = 1,610,909

1,610,909 X 45% = 724,909

Recto cash 150,000
574,909

b. Solution
Building 255,000
Equipment 156,000
Land 525,000
936,000
(50,000) Building mortgage
886,000 ÷ 55% = 1,610,909
50,000 mortgage payable
1,660,909 Total asset of the partnership upon formation