Bruce and Rachel agree to form a partnership on July 1. 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 (please see the attached image)
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:
a) capital accounts will remain fixed;
b) 12% interest profit computed on capital;
c) salaries of P30,000 each for 2019 but will be twice this amount next year and thereafter;
d)10% interest charge on partners' drawings made beyond the agreed salaries; and
e)remaining profits are to be shared equally.
Directions:
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 was 120,500. Cash withdrawals made by Bruce and Rachel amounted to 30,000 and 40,000 respectively. Prepare a profit distribution table and one entry to record the distribution.
d. Set up the general ledger (T Accounts) accounts to show each partner's equity.
e. Prepare a statement of changes in partners equitv.
Extracted text: Bruce and Rachel agree to form a partnership on July 1. 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. Agreed value P 30,000 138,000 240,000 200,000 14,000 8. Book value P32,000 240,000 322,000 200,000 14,000 Accounts Receivable Inventory Equipment Accounts Payable Notes Payable 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: a) capital accounts will remain fixed; b) 12% interest profit computed on capital; c) salaries of P30,000 each for 2019 but will be twice this amount next year and thereafter; d) 10% interest charge on partners' drawings made beyond the agreed salaries; and e) remaining profits are to be shared equally. Direction: 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 was P120,500. Cash withdrawals made by Bruce and Rachel amounted to P30,000 and P40,000, respectively. Prepare a. a profit distribution table and one entry to record the distribution. d. Set up the general ledger (T Accounts) accounts to show each partner's equity. e. Prepare a statement of changes in partners' equitv. ang aorned P250 000 before tax with