Guidelines regarding formation:

Individual vs Individual
Books of Individual Partnership Books

Adjusting entries N/A

Closing entries (real accounts) N/A
Investments Yes
Balance sheet Yes

Individual vs Sole Proprietor (old set of books is used; retain books of sole proprietor)
Books of Individual Books of Sole Proprietor/
Partnership books
Adjusting entries N/A Yes
Closing entries (real accounts) N/A No
Investments Yes
Balance sheet Yes

Individual vs Sole Proprietor (new set of books is used)

Books of Individual Books of Sole Proprietor

Adjusting entries N/A Yes

Closing entries (real accounts) N/A Yes
Investments
Balance sheet

Sole proprietor vs Sole proprietor (old set of books is used; retain books of one of the Sole Proprietors)
Books of Sole Proprietor Books of Sole Proprietor/
Partnership books
Adjusting entries yes Yes
Closing entries (real accounts) yes No
Investments Yes
Balance sheet Yes

Sole proprietor vs Sole proprietor (new set of books is used)'

Books of Sole Proprietor Books of Sole Proprietor

Adjusting entries yes Yes

Closing entries (real accounts) yes Yes
Investments
Balance sheet

Partnership vs Sole Proprietor (old set of books is used; retain books of partnership)
Books of Sole Proprietor Partnership books

Adjusting entries yes Yes

Closing entries (real accounts) yes No
Investments Yes
 Balance sheet Yes

Partnership vs sole proprietor (new set of books used)

Books of Sole Proprietor Books of Partnership

Adjusting entries yes Yes

Closing entries (real accounts) yes Yes
Investments
Balance sheet

Partnership vs Partnership (old set of books is used; retain books of one of the partnership)
Books of Partnership Partnership books

Adjusting entries yes Yes

Closing entries (real accounts) yes No
Investments Yes
Balance sheet Yes

Partnership vs Partnership (new set of books is used).

Books of Partnership Books of Partnership

Adjusting entries yes Yes

Closing entries (real accounts) yes Yes
Investments
Balance sheet
 New Partnership Books

Yes
Yes

he Sole Proprietors)

New Partnership Books

Yes
Yes
New Partnership Books

Yes
Yes

New Partnership Books

Yes
Yes
Individual vs Individual

The following items are being invested to form AB Partnership:

Agreed Values
Accounts Investment by F Investment by G
Cash ₱ 100,000.00 ₱ 100,000.00
Inventory ₱ 100,000.00
Land ₱ 200,000.00
Building ₱ 400,000.00
Equipment ₱ 200,000.00
Total ₱ 400,000.00 ₱ 700,000.00
Mortgage on building assumed by the partnership ₱ 200,000.00
₱ 400,000.00 ₱ 500,000.00

Books of Individual Partnership Books

Adjusting entries N/A

Closing entries (real accounts) N/A
Investments Yes
Balance sheet Yes
Assumption 1:
Assuming that F and G agree that each partner is to receive a
capital credit equal to the agreed values of the net assets
each partner invested;

To record adjustment:
To close books:

To record investments:
Partnership books:
JOURNAL ENTRIES
ACCOUNT TITLE DR CR
Cash 100,000.00
Inventoy 100,000.00
Equipment 200,000.00
F, Capital 400,000.00

Cash 100,000.00
Land 200,000.00
Building 400,000.00
Mortgage Payable 200,000.00
G, Capital 500,000.00
Assumption 2:
Assuming that F and G agree that each partner is to
receive an equal capital interest.

To record adjustment:
To close books:

To record investments:
Partnership books:
Bonus Approach JOURNAL ENTRIES
ACCOUNT TITLE DR CR
G, Capital 50,000.00
F, Capital 50,000.00

Revaluation (Goodwill) Approach Asset 100,000.00

F, Capital 100,000.00
 F G Total
Agreed Capital
Contributed Capital
Bonus
% Capital Interest

F G Total
Agreed Capital
Contributed Capital
Asset Revaluation
% Capital Interest
Individual vs Sole Proprietor

Below is the balance sheet of H on November 30, 20x4 before

accepting I as his partner to form HI Partnership

H Company
Balance Sheet
November 30, 20x4
Agreed Values Effect on Capital
Assets
Cash ₱ 100,000.00 ₱ 100,000.00
Accounts Receivable ₱ 40,000.00
Less: Allowance for doubtful accounts ₱ 2,500.00 ₱ 37,500.00 ₱ 36,000.00 ₱ (1,500.00)
Notes Receivable ₱ 50,000.00
Merchandise Inventory ₱ 22,500.00 ₱ 17,500.00 ₱ (5,000.00)
Equipment ₱ 60,000.00
Less: Accumulated depreciation ₱ 5,000.00 ₱ 55,000.00 ₱ 51,000.00 ₱ (4,000.00)
Total Assets ₱ 265,000.00
Accrued Interest receivable ₱ 3,000.00 ₱ 3,000.00
Prepaid expenses ₱ 2,000.00 ₱ 2,000.00

Liabilities and Capital

Accounts Payable ₱ 10,000.00
Notes Payable ₱ 50,000.00
Accrued expenses ₱ 6,000.00 ₱ (6,000.00)
H, Capital ₱ 205,000.00
Total Liabilities and Capital ₱ 265,000.00 ₱ (11,500.00)

It is agreed that for purposes of establishing H's interest the following adjustments shall be made:
a. the accounts receivable is estimated to be 90% realizable
b. Interest of 8% on notes receivable dated March 1, 20x4 is to be accrued.
c. the merchandise is to be valued at P17,500
d. the equipment is under-depreciated by P4,000
e. Prepaid expenses of P2,000 and accrued expenses of P6,000 are to be recognized.

I is to invest cash to obtain a one-third interest in the partnership.

 Assumption 1:
Individual vs Sole Proprietor (old set of books is used; retain books of sole proprietor)
Books of Individual
Books of Sole Proprietor/
Partnership books
Adjusting entries N/A Yes
Closing entries (real accounts) N/A No
Investments Yes
Balance sheet Yes

Books of Sole Proprietor (H) Books of Sole Propriet

To record adjustments: To record investment:
JOURNAL ENTRIES
ACCOUNT TITLE DR CR
H, Capital 1,500.00
Allowance for Doubtful accounts 1,500.00

H, Capital 5,000.00
Merchandise Inventory 5,000.00

H, Capital 4,000.00
Accumulated depreciation 4,000.00

Accrued interest receivable 3,000.00

H, Capital 3,000.00
###
 Assumption 2:
Individual vs Sole Proprietor (new set of books is used)
H I Total
Agreed Capital
Contributed Capital Adjusting entries
Closing entries (real accounts)
% Capital Interest Investments
Balance sheet

Books of Sole Proprietor (H) Books of Sole Proprietor (H)

To record investment: To record adjustments:
JOURNAL ENTRIES JOURNAL ENTR
ACCOUNT TITLE DR CR ACCOUNT TITLE
To close:
w set of books is used)
Books of Individual Books of Sole Proprietor New Partnership Books

N/A Yes
N/A Yes
Yes
Yes

New Set of Books (Partnership)

To record investments:
JOURNAL ENTRIES JOURNAL ENTRIES
DR CR ACCOUNT TITLE
 HI Partnership
Balance Sheet
November 30, 20x4

Assets:
Cash
oks (Partnership) Accounts Receivable
Less: Allowance for doubtful accounts
JOURNAL ENTRIES Notes Receivable
DR CR Interest Receivable
Merchandise Inventory
Prepaid expenses
Equipment (net)

Total Assets

Liabilities and Captial

Liabilities:

Accrued expenses
Accounts payable

Notes payable
Total Liabilities

Capital:
H, Capital
I, Capital
Total Capital

Total Liabilities and Capital

Sole Proprietor vs Sole Proprietor

On October 1, 20x4, J and K decided to pool new assets and form a partnership.
They allocate profit and loss in the ratio of 44:56 for them, respectively.
The firm is to take over business assets and assume business liabilities,
and capitals are to be based on net assets transferred after the following
adjustments:

a. J's inventory amounting to P10,000 is worthless, while K's agreed value of inventory
amounted to P125,000
b. Uncollectible accounts of P6,000 for J are to be written off; a 5% allowance is to be
recognized in the books of K.
c. Accrued rent income of P10,000 on J, and accrued salaries of P8,000 on K should be
recognized on their respective books.
d. Interest at 16% on Notes Receivable dated August 17, 20x4 should be accrued.
e. The office supplies unused amounted to P20,000.
f. The equipment's agreed value amounted to P50,000
g. The furniture and fixtures has a fair market value of P90,000
h. Interest at 12% on Notes Payable dated July 1, 20x4 should be accrued. Use 360 days
a year
i. K has an unrecorded patent amounting to P40,000
Balance sheets for J and K on October 1, 20x4 before adjustments are given below:
Agreed Values

Accounts J K J K
Cash ₱ 75,000.00 ₱ 45,000.00
Accounts Receivable ₱ 180,000.00 ₱ 150,000.00
Allowance for doubtful accounts ₱ (4,000.00) ₱ (5,000.00)
Notes Receivable ₱ 50,000.00
Merchandise Inventory ₱ 160,000.00 ₱ 120,000.00
Office Supplies ₱ 27,000.00
Equipment ₱ 100,000.00
Accumulated depreciation - equipment ₱ (45,000.00)
Furniture and fixtures ₱ 120,000.00
Accumulated depreciation - furniture and fixtures ₱ (20,000.00)
Total Assets ₱ 493,000.00 ₱ 460,000.00

Accounts Payable ₱ 133,000.00 ₱ 100,000.00

Notes Payable ₱ 50,000.00
Capitals ₱ 310,000.00 ₱ 360,000.00
Total liabilities and Captial ₱ 493,000.00 ₱ 460,000.00
Assumption 1: Old set of books of K

Sole proprietor vs Sole proprietor (old set of books is used; retain books of one of the Sole Proprietors)
Books of Sole Proprietor Books of Sole Proprietor/
Partnership books
Adjusting entries yes Yes
Closing entries (real accounts) yes No
Investments Yes
Balance sheet Yes

Books of Sole Proprietor (J)

To record adjustments:
JOURNAL ENTRIES
ACCOUNT TITLE DR CR
 Assumption 2: New set of books

Sole Proprietors) Sole proprietor vs Sole proprietor (new set of books is used)

Adjusting entries
Closing entries (real accounts)
Investments
Balance sheet

Books of Sole Proprietor (K) Books of Sole Proprietor (J)

To record adjustments: To record adjustments:
JOURNAL ENTRIES JOURNAL ENTRIES
ACCOUNT TITLE DR CR ACCOUNT TITLE
roprietor (new set of books is used)
Books of Sole Proprietor Books of Sole Proprietor New Partnership Books

yes Yes
yes Yes
Yes
Yes

Books of Sole Proprietor (K)

To record adjustments:
JOURNAL ENTRIES JOURNAL ENTRIES
DR CR ACCOUNT TITLE
 J and K Partnership
Balance Sheet
October 1, 2014

Assets
Cash 120,000
Accounts Receivable 330,000
Less: Allowance for doubtful accounts 17,500 312,500
Notes receivable 50,000
Interest receivable 1,000
Rent receivable 10,000
Merchandise inventory 275,000
Office supplies 20,000
Equipment (net) 50,000
JOURNAL ENTRIES Furnitures and Fixtures (net) 90,000
DR CR Patent 40,000
Total Assets 968,500
J and K Partnership
Balance Sheet
October 1, 2014

Liabilities and Capital

Liabilities
Salaries 8,000
Accounts Payable 133,000
Notes Payable 50,000
Interest payable 1,500
Total Liabilities 192,500
Capital
J, capital 390,500
K, capital 385,500
Total capital 776,000
Total Liabilities and Capital 968,500
Alice and Alex decide to merge their proprietorship into a partnership called AA Partners.
Financial records showed the following:

ALICE ALEX
AGREED AMOUNT
CASH 25,000.00
ACCOUNTS RECEIVABLE 32,000.00
LESS: ALLOWANCE FOR BAD DEBTS 2,400.00 29,600.00 25,000.00
INVENTORY 30,000.00
EQUIPMENT 40,000.00 22,000.00
LESS: ACCUMULATED DEPRECIATION 14,000.00 26,000.00
TOTAL 47,000.00

Equal interest over the assets with additional investment required to meet this agreement
CASH METHOD
ALICE ALEX TOTAL
AGREED CAPITAL 47,000.00 47,000.00 94,000.00
CONTRIBUTED CAPITAL 47,000.00 45,000.00 92,000.00
ADDITIONAL CASH INVESTMENT - 2,000.00 2,000.00
PARTNER'S INTEREST 50% 50% 100%

Alex investment represents 40% of total agreed equity. The excess capital credit for Alice is due
to her strong connection in the electronic industry which will ensure a large client base for the partnership
GOODWILL METHOD
ALICE ALEX TOTAL
AGREED CAPITAL 67,500.00 45,000.00 112,500.00
CONTRIBUTED CAPITAL 47,000.00 45,000.00 92,000.00
GOODWILL 20,500.00 - 20,500.00
PARTNER'S INTEREST 60% 40% 100%

Equal interest over the partnership with no additional adjustment in the assets.
BONUS METHOD
ALICE ALEX TOTAL
AGREED CAPITAL 46,000.00 46,000.00 92,000.00
CONTRIBUTED CAPITAL 47,000.00 45,000.00 92,000.00
BONUS (1,000.00) 1,000.00 -
PARTNER'S INTEREST 50% 50% 100%
 The partners agree that the net realizable value of receivables
ALEX is P25,000 and that the fair value of the equipment is P22,000.
AGREED AMOUNT Obsolete stock of P10,000 should be written off
25,000.00

20,000.00

45,000.00

JOURNAL ENTRIES
ACCOUNT TITLES DR CR

e partnership
Steve owns a store selling health products and Guy owns a beauty salon. They agree to combine their
businesses and call it Health and Beauty Shop. Prior to the combination they agree to review the assets and
liabilities and make some necessary adjustments.
STEVE HEALTH STORE AGREEMENT
CASH 25,000.00 25,000.00
ACCOUNTS RECEIVABLE 25,000.00 25,000.00
ALLOWANCE FOR DOUBTFUL ACCOUNTS (5,000.00)
MERCHANDISE INVENTORY 80,000.00 70,000.00
SUPPLIES INVENTORY 15,000.00 15,000.00
FURNITURE AND FIXTURES 50,000.00 35,000.00
TOTAL 195,000.00 165,000.00

ACCOUNTS PAYABLE 20,000.00 20,000.00

NOTES PAYABLE 30,000.00 30,000.00
ACCRUED INTEREST PAYABLE 2,500.00
CAPITAL 145,000.00
TOTAL 195,000.00 52,500.00
112,500.00

JOURNAL ENTRIES
ACCOUNT TITLES DR CR
CASH 25,000.00
ACCOUNTS RECEIVABLE 25,000.00
MERCHANDISE INVENTORY 70,000.00
SUPPLIES INVENTORY 15,000.00
FURNITURE AND FIXTURES 35,000.00
ALLOWANCE FOR DOUBTFUL ACCOUNTS 5,000.00
ACCOUNTS PAYABLE 20,000.00
NOTES PAYABLE 30,000.00
ACCRUED INTEREST PAYABLE 2,500.00
STEVE, CAPITAL 112,500.00

CASH 11,000.00
SUPPLIES INVENTORY 15,000.00
FURNITURE AND FIXTURES 70,000.00
ACCOUNTS PAYABLE 5,000.00
GUY, CAPITAL 91,000.00
to combine their
o review the assets and
The partners agree to the following conditions:
GUY BEAUTY SALON AGREEMENT TOTAL
11,000.00 11,000.00 32,500.00 a. P5,000 doubtful accounts should be recognized.
25,000.00 b. Furniture and Equipment should be at the market
(5,000.00) value of P35,000 for the health store and P70,000
70,000.00 for the beauty salon.
25,000.00 15,000.00 30,000.00 c. P10,000 obsolete goods should be written off.
85,000.00 70,000.00 105,000.00 d. Beauty supplies unused should only be P15,000
121,000.00 96,000.00 257,500.00 e. Accrued interest should be recognized for P2,500.

5,000.00 5,000.00 25,000.00

30,000.00
2,500.00
116,000.00
121,000.00 5,000.00
91,000.00
 Make an additional entry for the cash investment or withdrawal in compliance
with the agreed equity of P100,000 for each partner.
conditions:
CASH METHOD
d be recognized. 36,000.00 STEVE
d be at the market (12,500.00) AGREED CAPITAL 100,000.00
re and P70,000 9,000.00 CONTRIBUTED CAPITAL 112,500.00
32,500.00 CASH INVESTMENT (WITHDRAWAL) (12,500.00)
be written off. PARTNER'S INTEREST 50%
only be P15,000
gnized for P2,500.

JOURNAL ENTRIES
ACCOUNT TITLES DR
STEVE, CAPITAL 12,500.00
CASH

CASH 9,000.00
GUY, CAPITAL
ent or withdrawal in compliance

THOD HEALTH AND BEAUTY SHOP

GUY TOTAL BALANCE SHEET
100,000.00 200,000.00
91,000.00 203,500.00
9,000.00 (3,500.00) ASSETS:
50% 100% CASH
ACCOUNTS RECEIVABLE 25,000.00
ALLOWANCE FOR DOUBTFUL ACCOUNTS (5,000.00)
MERCHANDISE INVENTORY
SUPPLIES INVENTORY
FURNITURE AND FIXTURES
TOTAL

LIABILITES & PARTNERS' EQUITY

ACCOUNTS PAYABLE
NOTES PAYABLE
ACCRUED INTEREST PAYABLE
CR

12,500.00 STEVE, CAPITAL

GUY, CAPITAL

9,000.00
TOTAL LIABILITIES & PARTNER'S EQUITY
 They agree to an equal capital credit without any additional cash investment.
Prepare the third entry to record the bonus capital.

BONUS METHOD
STEVE GUY
AGREED CAPITAL 101,750.00 101,750.00
CONTRIBUTED CAPITAL 112,500.00 91,000.00
BONUS (10,750.00) 10,750.00
32,500.00 PARTNER'S INTEREST 50% 50%

20,000.00
70,000.00
30,000.00
105,000.00
257,500.00

25,000.00
30,000.00
2,500.00 JOURNAL ENTRIES
57,500.00 ACCOUNT TITLES DR CR
STEVE, CAPITAL 10,750.00
100,000.00 GUY, CAPITAL 10,750.00
100,000.00
200,000.00

257,500.00
cash investment.

TOTAL
203,500.00
203,500.00
-
100%