Discussion Questions on Partnership Formation

ADAPTED: Nelson S. Abeleda, Simplified Accounting for Partnership and Corporation

Problem: Jose admits Rizal for a partnership interest in his business. Accounts
in the ledger of Jose on November 30, 200A, just before the admission of Rizal
showed the following balances:

Debit Credit
Cash
P 26,000
Accounts Receivable
120,000
Inventory
80,000
Equipment
105,000
Accounts Payable
62,000
Jose Capital
269,000

P331,000 P331,000
For purposes of establishing Jose�s interest in the new partnership, it is agreed
that the following adjustments shall be made:
An allowance for bad debts of 2% of accounts receivable is to be provided.
The inventory is to be valued at P122,000.
Prepaid expenses of P6,500 and accrued expenses of P4,000 are to be recognized.
Goodwill of P3,000 is to be recognized.
Rizal will invest sufficient cash to give him a 1/3 interest in the new
partnership.
Required: Journal entries necessary to record the formation of the partnership
assuming new set of books will be used. (30 points)

I. BOOKS OF JOWIE

A. Adjusting Entries/Revaluation of Assets

1 Jose, Capital 2,400 Debit

Allowance for Bad Debts Expense 2400 Credit
2 Inventory 42,000 Debit
Jose, Capital 42,000 Credit
3 Prepaid expenses 6,500 Debit
Jose, Capital 6,500 Credit
Jose, Capital 4,000 Debit
Accrued Expenses 4,000 Credit
4 Goodwill 3,000 Debit
Jose, Capital 3,000 Credit
B. Closing entries
Allowance for bad debts 2,400 Debit
Accounts payable 62,000 Debit
Accrued expenses 4,000 Debit
Jose, Capital 314,100 Debit
Cash 26,000 Credit
Accounts receivable 120,000 Credit

Inventory 122,000 Credit

Prepaid expenses 6,500 Credit

Equipment 105,000 Credit

 Goodwill 3,000 Credit

II. BOOKS OF PARTNERSHIP

1. Cash 26,000 Debit
Accounts receivable 120,000 Debit
Inventory 122,000 Debit
Prepaid expenses 6,500 Debit
Equipment 105,000 Debit
Allowance for doubtful accounts 2,400 Credit
Accounts payable 62,000 Credit
Accrued expenses 4,000 Credit
Jose, Capital 314,100 Credit

2. Cash 157,050 Debit

Rizal, Capital 157,050 Credit