Allan Irene

Statement of Financial Position

October 1, 2001

Cash PHP 18,750.00 PHP 11,250.00

Accounts Receivable 45,000 37,500
Merchandise Inventory 40,000 30,000
Equipment 25,000 30,000
Accumulated Depreciation (11,250) (3,750)
Total Assets PHP 175,500.00 PHP 105,000.00

Accounts Payable PHP 34,500.00 PHP 25,000.00

Capital 83,000 80,000
Total Liabilities and Capital PHP 175,000.00 PHP 105,000.00

Adjusting Entries

Merchandise Inventory PHP 5,000.00

Irene, Capital 5,000

Bad Debts Expenses 2,250

Allowance for doubtful accounts 2,250

Bad Debts Expenses 1,875

Allowance for doubtful accounts 1,875

Accrued Expenses 2,000

Accrued Expenses Payable 2,000

Cash 25,000
Irene, Capital 25,000

Books of Allan

Allan, Capital 8,500

Bad Debts Expenses 2,250
Accrued Expenses 2,000
Allowance for doubtful accounts 2,250
Accrued Expenses Payable 2,000
To record adjustments to restate Allan's Capital

Accounts Payable 34,500

Accumulated Depreciation 11,250
Allowance for doubtful accounts 2,250
Accrued Expenses Payable 2,000
Allan, Capital 74,500
Accrued Expenses 2,000
Bad Debts Expenses 2,250
Cash 18,750
Accounts Receivable 45,000
Merchandise Inventory 40,000
Equipment 25,000
To close the books of Allan 124,500 133,000

Books of Irene

Irene, Capital 33,750

Cash 25,000
Bad Debts Expense 1,875
Merchandise Inventory 5,000
Allowance for doubtful accounts 1,875
To record adjustments to restate Irene's Capital

Accounts Payable 25,000

Accumulated Depreciation 3,750
Allowance for doubtful accounts 1,875
Merchandise Inventory 35,000
Irene, Capital 71,250
Bad Debts Expenses 2,250
Cash 36,250
Accounts Receivable 37,500
Equipment 30,000
To close the books of Irene
 Allan
Statement of Financial Position
October 1, 2001

Cash PHP 18,750.00

Accounts Receivable 45,000
Allowance for doubtful accounts (2,250)
Merchandise Inventory 40,000
Equipment 25,000
Accumulated Depreciation (11,250)
Total Assets PHP 115,250.00

Accounts Payable PHP 34,500.00

Capital 80,750
Total Liabilities and Capital PHP 115,250.00
of:

Irene

Allan

Irene

Allan

Irene
Irene

PHP 11,250.00
37,500
(1,875)
35,000
30,000
(3,750)
PHP 108,125.00

PHP 25,000.00
78,125
PHP 103,125.00
On October l, 2001, Allan and Irene decide to pool their assets and form a partnership. The firm is to take over business asset
and capitals are to be based on net assets transferred after the following adjustments:
1. Irene’s inventory is to be valued at 35,000
2. An allowance for doubtful accounts of 5% is to be established on the accounts receivable of each party.
3. Accrued expenses ofP2,000 are to be recognized on Allan’s books.
4. Irene is to be allowed goodwill of P25,000 and is to invest additional cash so that she will have a 60% interest in the new

                                                                     Allan               Irene

Cash                                                                P 18,750          P 11,250
Accounts Receivable                                       45,000             37,500
Merchandise Inventory                                  40,000             30,000
Equipment                                                      25,000             30,000
Accumulated Depreciation                             ( 11,250)        ( 3,750)
Total Assets                                                   PI 17 500        PI 05 000
Accounts Payable                                           P 34,500          P 25,000
Capital                                                            83,000             80,000
Total Liabilities and Capital                           PI 17 500        P105 000

The books of Irene will be used by the new partnership.

Required:

Give the entries to adjust and close the books of Allan.

Give the entries required on the books of Irene upon the formation of the partnership
Prepare a balance sheet for the firms of Allan and Irene as of October 1
is to take over business assets and assume business liabilities

f each party.

ave a 60% interest in the new firm.

 Allan Agreement Adjustment
Cash 18,750 18,750
Acccounts Receivable 45,000 45,000
Allowance for Doubtful Accounts (2,250) (2,250)
Merchandise Inventory 40,000 40,000
Equipment 25,000 25,000
Acc. Depreciation (11,250) (11,250)
Total Assets 117,500 115,250 (2,250)

Accounts Payable 34,500 34,500

Accrued Expenses 2,000 2,000
Allan, Capital 83,000 78,750 (4,250)
Total Liabilities and Capital 117,500 115,250 (2,250)

Allan's Book

Allan, Capital 4,250

Allowance for Doubtful Accounts 2,250
Accrued Expenses 2,000
To record adjustments in Allan's books

Allowance for Doubtful Accounts 2,250

Accumulated Depreciation 11,250
Accounts Payable 34,500
Accrued Expenses 2,000
Allan, Capital 78,750
Cash 18,750
Accounts Receivable 45,000
Merchandise Inventory 40,000
Equipment 25,000
To close Allan's Books
Allan's net investment 78,750
Divide by Allans Partnership Interest 40%
Implied Partnership Valuation 196,875
x Irene's Partnership Interest 60%
Irene's net investment 118,125
Irene's adjusted capital before cash investment
Irene, Capital 80,000
Allowance for Doubtful Accounts (1,875)
Merchandise Inventory 5,000
Goodwill 25,000 108,125
Additional cash investment 10,000

Irene's Book/Partnership Books

Merchandise Inventory 5,000

Goodwill 25,000
Allowance for Doubtful Accounts 2,875
Irene, Capital 28,125
To record adjustments in Irene's books

Cash 10,000
Irene, Capital 10,000
To record Irene's additional investment

Cash 18,750
Acccounts Receivable 45,000
Merchandise Inventory 40,000
Equipment 13,750
Allowance for Doubtful Accounts 2,250
Accounts Payable 34,500
Accrued Expenses 2,000
Allan, Capital 78,750
To record Allan's investment
 Allan and Irene Partnership
Statement of Financial Position
October 1, 2001

Assets
Cash 40,000
Accounts Receivable 82,500
Allowance for Doubtful Accounts (4,125) 78,375
Merchandise Inventory 75,000
Equipment 40,000
Goodwill 25,000
Total Assets 258,375

Liabilities and Owner's Equity

Accounts Payable 59,500
Accrued Expenses 2,000
Total Liabilities 61,500

Allan, Capital 78,750

Irene, Capital 118,125
Total Owner's Equity 196,875

Total Liabilities and Owner's Equity 258,375