Illustration – Individual with no existing business form a partnership

Assume that on November 1, 2022, Anna and Bella decided to form a partnership
business named Annabel Traders.
Anna invested cash of P100,000 and a building with fair market value of P450,000.

Bella invested cash of P150,000 plus a delivery van with a book value of P270,000. The
van has been appraised at P240,000 but it has a mortgage payable attached to it
amounting to P55,000.

1. To record the investment of Anna in the partnership books, the entry is:

Cash 100,000
Building 450,000
Anna, Capital 550,000

2. To record the investment of Bella in the partnership books, the entry is:

Cash 150,000
Transportation equipment 240,000
Mortgage payable 55,000
Bella, Capital 335,000

Annabel Traders
Statement of Financial Position
November 1, 2022

Assets

Cash P 250,000
Building 450,000
Transportation Equip. 240,000
Total Assets P 940,000

Liabilities and Owner’s Equity

Mortgage Payable P 55,000
Anna, Capital 550,000
Bella, Capital 335,000
Total Liabilities and Owner’s Equity P 940,000
A Left

Illustration – A Sole Proprietor and another Individual Forming a Partnership

Assume that on September 1, 2022, Cora, the owner of an existing single proprietorship
business, decided to form a partnership with Corinne to be named Coco Merchants. The
statement of financial position of Cora prior to formation is as follows:

Cora Grocers
Statement of Financial Position
September 1, 2022

Assets
Cash P150,000
Accounts Receivable P200,000
Less allowance for doubtful accounts 10,000 190,000

Merchandise inventory 100,000

Equipment P 70,000
Less: Accumulated depreciation 12,000 58,000
Total Assets P 498,000

Liabilities and Owner’s Equity

Notes payable P 200,000

Accounts Payable 48,000
Cora, Capital 150,000
Total Liabilities and Owner’s Equity P 498,000

Corinne has agreed to invest cash equal to the capital of Cora after the following
adjustments on Cora’s assets and liabilities:

a) Accounts receivable is 90% realizable.

b) Merchandise inventory is to be reduced to 90,000.
c) Equipment is to be valued at P56,000.
d) Interest of P5,000 on notes payable should be recognized.
B LEFT
Step 2 – Close the books of sole proprietor.

Because the single proprietorship is dissolved, it follows that its books should be closed,
that is, all its accounts are to be brought to zero balance.

To illustrate, below is the closing entry of Cora’s books:

Allowance for doubtful accounts 20,000

Accumulated depreciation 14,000
Interest payable 5,000
Notes payable 200.000
Accounts payable 148,000
Cora, Capital 123,000
Cash 150,000
Accounts receivable 200,000
Merchandise inventory 90,000
Equipment 70,000
To close Cora’s books

Step 3 – Record the opening entries in the new partnership books.

In the new partnership books, the investment of both partners is recorded: either in two
simple journal entries or a compound journal entry. For illustration purposes, we will use
two simple journal entries. To record the investment of Cora, the entry is:

Cash 150,000
Accounts receivable 200,000
Merchandise inventory 90,000
Equipment 56,000
Allowance for doubtful accounts 20,000
Interest payable 5,000
Notes payable 200,000
Accounts payable 148,000
Cora, Capital 123,000
To record Cora’s investment

As agreed by both partners, Corinne will contribute cash equal to the adjusted capital
of Cora. Thus, to record Corinne’s investment, the entry is:

Cash 123,000
Corinne, Capital 123,000
To record Corinne’s investment
C LEFT Illustration – Two Sole Proprietorships Forming a Partnership

Assume that on August 15, 2022, Villa and Mortiz combined their businesses to form a
partnership named Villamor Technologies. The firm will specialize in developing financial
modeling software packages. Their statements of financial position are as follows:

E. Villa
Statement of Financial Position
August 15, 2022
Assets

Cash P 18,000
Accounts receivable 75,000
Supplies 50,000
Equipment 500,000
Total Assets P 643,000

Liabilities and Owner’s Equity

Accounts payable P 320,000

Villa, Capital 323,000
Total Liabilities and Owner’s Equity P 643,000

B. Mortiz
Statement of Financial Position
August 15, 2022
Assets
Cash P150,000
Accounts receivable 100,000
Supplies 80,000
Furniture 150,000
Total Assets P 480,000

Liabilities and Owner’s Equity

Accounts payable P 150,000

Mortiz, Capital 330,000
Total liabilities and owner’s equity P 480,000
 Books of Partnership
1 Cash 18,000
Accounts receivable 75,000
Supplies 60,000
Equipment 450,000
Allowance for doubtful accounts 7,500
Accounts payable 320,000
Villa, Capital 275,500
To record Villa investment

2 Cash 150,000
Accounts receivable 100,000
Supplies 80,000
Furniture 90,000
Allowance for doubtful accounts 10,000
Accounts payable 150,000
Mortiz, Capital 260,000
To record Mortiz investment