Exercise 1: Discussion Questions

1. Why is it preferable to have a written contract of partnership? What are the contents of a typical
partnership contract?
2. What is the major difference between a general and a limited partnership? How can they be
distinguished? When a partnership is a limited partnership, does the characteristic of “unlimited
liability” still apply? Why or why not?
3. Why are capital accounts and drawing accounts opened for each partner?
4. Why is the Accumulated Depreciation account not carried over to the new books of the
partnership?
5. Why is the Allowance for Uncollectible Accounts account carried over to the new books of the
partnership? How does this differ from the Accumulated Depreciation?

Exercise 2: Lynleen Co.

Lyn, the owner of a successful fertilizer business felt that it is time to expand operations. Lyn offered to
form a partnership with Leen, the owner of a nearby warehouse. The partnership would be called
Lynleen Co. Leen accepted Lyn’s offer and the partnership was formed on July 1, 2020.
The assets and liabilities of Lyn’s Fertilizer and their agreed valuation on June 30,2020 before the
formation of the partnership are given below:

Book Value Agreed Valuation

Cash Php 229,500 Php 229,500
Accounts receivable 2,103,000 2,103,000
Allowance for doubtful accounts 117,000 167,500
Inventory 1,012,500 900,000
Prepaid rent 29,250 0
Store equipment 390,000 300,000
Accumulated depreciation 97,500 0
Notes payable 330,000 330,000
Accounts payable 505,500 505,500

The partners agreed to share profits and losses equally and decided to invest an equal amount in the
partnership. Lyn and Leen agreed that Leen’s land is worth P500,000 and his building is P1,450,000. Both
properties will be contributed by Leen to the partnership. Leen will also invest additional cash sufficient
to make his capital equal to Lyn. The partnership will use a new set book.
Requirements:
1. Give the adjusting journal entries in books of Lyn.
2. Give the journal entries to record the investment of the partners in the partnership books.
3. Prepare Lynleen Co.’s Statement of Financial Position as of July 1, 2020.

Exercise 2: JC Partnership
On August 1, 2020, Jon and Christian formed a partnership. Jon is to invest certain business assets at
values which are yet to be agreed upon. He is to transfer business liabilities and is to contribute
sufficient cash to bring his total capital to P210,000, which is 70% of the total capital as had been agreed
upon.
Details regarding the book values of Jon’s business assets and liabilities and their corresponding
valuation follows:

Book Values Agreed Valuation

Accounts receivable Php 58,000 Php 58,000
Allowance for doubtful accounts 4,200 5,000
Merchandise inventory 98,400 107,000
Store equipment 32,000 32,000
Accumulated depreciation-Store equipment 19,000 16,400
Office equipment 27,000 27,000
Accumulated depreciation-Office equipment 14,200 8,600
Accounts payable 56,000 56,000

Ira agrees to invest cash of 42,000 and merchandise valued at current market price.

Requirements:
1. Give the adjusting journal entries in books of Jon.
2. Give the journal entries to record the investment of the partners in the partnership books.
3. Prepare JC Partnership’s Statement of Financial Position as of August 1, 2020.