Financial Accounting and Reporting

Seatwork: Partnership Formation

On June 30, 2020, MC and JC both sole proprietors decided to combine their talents and capital to form
a partnership. Their statement of financial position are as follows:

MC

Statement of Financial Position

June 30, 2020

Assets

Cash 50,000.00

Accounts Receivable 100,000.00

Merchandise Inventory 80,000.00

Furniture and Fixtures 60,000.00

Total Assets 290,000.00

Total Liabilities and Owner’s Equity

Accounts Payable 30,000.00

MC, Capital 260,000.00

Total Liabilities and Owner’s Equity 290,000.00

JC

Statement of Financial Position

June 30, 2020

Assets

Cash 40,000.00

Accounts Receivable 80,000.00

Merchandise Inventory 100,000.00

 Delivery Equipment 90,000.00

Total Assets 310,000.00

Total Liabilities and Owner’s Equity

Accounts Payable 60,000.00

JC, Capital 250,000.00

Total Liabilities and Owner’s Equity 310,000.00

The conditions and adjustments agreed upon by the partners for purposes of determining their interests
in the partnership are:

1. Actual count and bank reconciliation on MC proprietorship’s cash account revealed cash short
and unrecorded expenses of P3,500.00.
2. Establishment of a 10% allowance for uncollectible accounts in each book.
3. The merchandise inventory of JC is to be increased by P10,000.00
4. The furniture and fixtures of MC are to be depreciated by P6,000.00
5. The delivery equipment of JC is to be depreciated by P9,000.00

Required:

Books of MC and JC.

1. Adjust the accounts of both parties in accordance with the agreement.

Adjustments are to be made to their respective capital accounts.
2. Close the books.

Books of the Partnership.

1. Record the investment of MC.

2. Record the investment of JC.
3. Prepare the statement of financial position of the newly formed partnership.
 Books of MC and JC
MC
MC, Capital 19,500
Cash 3,500
Allowance for Bad Debts 10,000
Accumulated Depreciation 6,000
-to record the adjustment to restate MC's Capital

JC
Merchandise Inventory 10,000
JC, Capital 7,000
Allowance for Bad Debts 8,000
Accumulated Depreciation 9,000
-to record the adjustment to restate JC's Capital

Books of MC
Accounts Payable 30,000
Allowance for Bad Debts 10,000
Accumulated Depreciation 6,000
MC, Capital 260,000
Cash 46,500
Accounts Receivable 100,000
Merchandise Inventory 80,000
Furniture and Fixtures 60,000
-to close the books of MC

Books of JC
Accounts Payable 60,000
Allowance for Bad Debts 8,000
Accumulated Depreciation 9,000
JC, Capital 243,000
Cash 40,000
Accounts Receivable 80,000
Merchandise Inventory 110,000
Delivery Equipment 90,000
-to close the books of JC

Books of Partnership
Cash 46,500
Accounts Receivable 100,000
Merchandise Inventory 80,000
Furniture and Fixtures 54,000
Accounts Payable 60,000
Allowance for Bad Debts 8,000
MC, Capital 240,500
-to record the investment of MC

Cash 40,000
Accounts Receivable 80,000
Merchandise Inventory 110,000
Delivery Equipment 81,000
Accounts Payable 60,000
Allowance for Bad Debts 8,000
JC, Capital 243,000
-to record the investment of JC

MC and JC
Statement of Financial Position
30-Jun-20
ASSETS
Cash 86,500
Trade and Other Receivable 162,000
Inventory 190,000
Total Current Assets 438,500

Property, Plant & Equipment 135,000

Total Non-Current Assets 135,000

TOTAL ASSETS 573,500

LIABILITIES AND OWNER'S EQUITY

Liabilities
Trade and Other Payables 90,000
Total Current Liabilities 90,000

Owner's Equity
MC, Capital 240,500
JC, Capital 243,000
Total Equity 483,500

TOTAL LIABILITIES AND EQUITY 573,500

COMPUTATIONS

no. Adjustments Entry

MC
Title Debit Credit
1 Miscellaneous Expense 3,500
Cash 3,500

2 Bad Debt Expense 10,000

Allowance for Bad Debts 10,000

4 Depreciation Expense 6,000

Accumulated Depreciation- Furniture & Fixtures 6,000

Adjustments Entry
JC
 2 Bad Debt Expense 8,000
Allowance for Bad Debts 8,000

3 Merchandise Inventory 10,000

Income Summary 10,000

5 Depreciation Expense 9,000

Accumulated Depreciation - Equipment 9,000

Unadjusted Trial Balance Adjustments Adjusted Trial Balance

MC
Account Title Debit Credit Debit Credit Debit Credit
Cash 50,000 3,500 46,500
Accounts Receivable 100,000 100,000
Merchandise Inventory 80,000 80,000
Furnitures and Fixtures 60,000 60,000
Accounts Payable 30,000 30,000
MC, Capital 260,000 260,000
Miscellaneous Expense 3,500 3,500
Bad Debt Expense 10,000 10,000
Allowance for Bad Debt 10,000 10,000
Depreciation Expense 6,000 6,000
Accumulated Depreciation 6,000 6,000
JC
Cash 40,000 40,000
Accounts Receivable 80,000 80,000
Merchandise Inventory 100,000 100,000
Delivery Equipment 90,000 90,000
Accounts Payable 60,000 60,000
JC, Capital 250,000 250,000
Bad Debt Expense 8,000 8,000
Allowance for Bad Debt 8,000 8,000
Merchandise Inventory 10,000 10,000
Income Summary 10,000 10,000
Depreciation Expense 9,000 9,000
Accumulated Depreciation 9,000 9,000

600,000 600,000 643,000 643,000

NOTE 1
Depreciation Expense 15,000

NOTE 2 - TAOR
Accounts Receivable 180,000
Less: Allowance for Bad Debts 18,000
162,000

NOTE 3
Merchandise Inventory 190,000
NOTE 4 - PPE
Delivery Equipment 90,000
Less: Accumulated Depreciation 9,000
81,000
Furniture and Fixtures 60,000
Less: Accumulated Depreciation 6,000
54,000
135,000

NOTE 5 - TAOP
Accounts Payable 90,000