Chapter 3 - Partnership Operation (Division of Profit or Loss) Bruce and Rachel agree to form a partnership on July 1, 2

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Chapter 3 Partnership Operation Division Of Profit Or Loss Bruce And Rachel Agree To Form A Partnership On July 1 2 1 (252.95 KiB) Viewed 49 times

Chapter 3 - Partnership Operation (Division of Profit or Loss) Bruce and Rachel agree to form a partnership on July 1, 2020. Bruce, who has been trading as a sole proprietor, will invest certain business assets at agreed valuations, transfer his business liabilities and contribute sufficient cash to bring his total contribution to a 60% interest over the new business. Details of Bruce's assets and liabilities are given below. Book value Agreed value Accounts receivable P 32,000 P 30,000 Inventory 240,000 138,000 Equipment 322,000 240,000 Accounts payable 200,000 200,000 Notes payable 14,000 14,000 Rachel agrees to bring in inventory with a value of P146,500 and P93,500 in cash for a 40% interest in the partnership. The partners have agreed on the following: 1. Capital accounts will remain fixed 2. 12% interest profit computed on capital 3. Salaries of P30,000 each for 2020 but will be twice this amount next year and thereafter; 4. 10% interest charge on partners' drawings made beyond the agreed salaries; and 5. Remaining profits are to be shared equally.
Direction: a. Prepare two journal entries to set up the partnership b. Prepare a statement of financial position for the partnership as at July 1 just after formation. c. Profit (before interest and salaries) on Dec. 31,2020, was P120,500. Cash withdrawals made by Bruce and Rachel amounted to P30,000 and P40,000, respectively. Prepare a profit distribution table and one entry to record the distribution. d. Set up the general ledger (T Accounts) accounts to each partner’s equity. e. Prepare a statement of changes in partners' equity. Additional information and requirements: The following year, 2021, the business earned P250,000 before tax with cash withdrawn by the partners as follows: P50,000 by Bruce and P60,000 by Rachel. Direction: a. Prepare a profit distribution table and one entry to record the distribution. b. Set up the general ledger (T Accounts) accounts to each partner's equity. c. Prepare a statement of changes in partners' equity.