Exercise 12

Max Solis has successfully operated Star News for a number of years. He wants to expand the newspaper
publishing business
but he would need more capital, so he invited Mary Prieto to join him on July 1. A post closing Trial balance of his
business
showed the following
Debit Credit
Cash 170,000.00 Cash 170,000.00
Accounts Receivable 500,000.00 Accounts Receivable 500,000.00
Allowance for Bad
Supplies Inventory 75,000.00 Debts
Prepaid Insurance 10,000.00 Supplies Inventory 60,000.00
Prepaid Insurance 10,000.00
Furniture & Fixtures 35,000.00
Accumulated
Depreciation 5,000.00 Furniture & Fixtures 25,000.00

Accumulated
Printing Equipment 500,000.00 Depreciation

Accumulated
Depreciation 120,000.00 Printing Equipment 420,000.00

Accumulated
Accounts Payable 350,000.00 Depreciation
Solis, Capital 815,000.00 Accounts Payable
1,290,000.00 1,290,000.00 Tax Payable
Solis, Capital
Tax Expense 5,000.00

Direction
a. Prepare a journal entry to record in the partnership books Solis' adjusted assets and liability contributions
b. Determine Prieto's actual cash investment and her agreed capital credit
c. Prepare a journal entry in the partnership books to record the cash investment of Prieto including the bonus
capital for Solis

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 1. The allowance for bad debts should be 15% of the accounts receivable after writing off bad accounts of P50,000
Solis, Capital 2,000.00

Allowance for Bad

Debts 2,000.00

2. The market value of the supplies is only 80% of its cost

Solis, Capital 15,000.00
Supplies 15,000.00

3. The market value of the furniture and fixture is P25,000

Solis, Capital 10,000.00
Furniture & Fixtures 10,000.00

4. Accrued taxes of P5,000 should be recognized

Tax Expense 5,000.00
Tax Payable 5,000.00

5. The printing equipment is estimated to have a market value lower by P80,000

Solis, Capital 80,000.00
Equipment 80,000.00

The partnership will be called the Philippine Star Balita with Prieto investing cash to make the agreed capital P
1,000,000. It was further
agreed that Prieto will be given a 40% interest in the firm

b Solis Prieto Total

Agreed Capital 600,000.00 400,000.00 1,000,000.00
Actual Contributions 170,000.00 830,000.00 1,000,000.00

Total 430,000.00 -430,000.00 0

c
Cash 830,000.00
Goodwill 430,000.00
Prieto, Capital 1,000,000.00

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