DRILL 2

(Partnership Formation to Dissolution)

On March 1, 2020, assuming you and your partner are PEK and POK, respectively, and you formed a partnership named
“PEKPOK”. Your contributions are listed below:
PEK POK
Cash 10,000 20,000
Accounts Receivable 36,000 80,000
Inventories 30,000 60,000
Land 90,000 -
Building - 70,000
Equipment 20,000 25,000
Accounts Payable 40,000 -
Capital 146,000 255,000

The partners agreed the following:

a. The recoverable amount of the respective accounts receivable are 30,000 and 50,000 for PEK and POK,
.respectively.
b. The inventory contributed by POK includes obsolete items with a recorded cost of 20,000. The inventory of PEK
has an estimated selling price of 40,000 and estimated cost to sell of 5,000.
c. The land contributed by PEK has an attached mortgage of 30,000 to be assumed by the partnership.
d. The equipment contributed by POK has a fair value of 20,000.
e. PEK has an unrecorded accounts payable of 10,000. The partnership assumes the obligation of settling that
account.

During the year, PEK invested additional cash of ₱40,000 and 20,000 on August 31, 2020 and November 1, 2020,
respectively. POK also invested additional cash amounting to 40,000 on September 1, 2020. The partnership agreement
stipulates the following:
 Monthly salary allowances of ₱4,000 and ₱3,000 to PEK and POK, respectively, recognized as expenses.
 10% bonus on profit before interest but after salaries and bonus to POK.
 20% interest on the average capital of PEK.
 Balance equally.

The monthly salaries are withdrawn by the partners at each month-end. Also on December 31, 2020, since it is a new
year’s eve, PEK and POK want to buy fire crackers to participate in the Putukan time. Thus, they withdraw cash from the
partnership amounting to 20,000 and 10,000, respectively to satisfy their wants. The partnership earned profit of
₱330,000 during the period before deductions for bonus and interest.

On January 1, 2021, DUL purchases 20% interest in the partnership from PEK and POK for 150,000 and the partners
agreed to have a new profit/loss ratio distribution; 30% PEK, 50% POK and 20% DUL.

Immediately on January 3, 2021, DOG is also admitted in the partnership through an investment amounting to 300,000
for a 25% capital interest and a share of 30% profit/loss ratio in the partnership.

PEK retires on July, 1 2021 receives cash of P185,143 and land with a fair value of 120,000 from the partnership as
settlement to his interest. The partnership reported a profit of 370,000 for the six months ended June 30, 2021.

After retirement of PEK, the remaining partners decided to continue the operation of PEKPOK partnership. Assuming the
share of POK, DUL, and DOG in the profit generated by the partnership for the period July 1, 2021 to December 31, 2021
are 100,000, 40,000 and 85,734, respectively. On January 22, 2022, the partners decided to convert the partnership into
corporation. The corporation’s authorized capitalization is P2,000,000 divided into 200,000 ordinary shares with a par
value of P10 per share. The shares to be issued to partners are based on their respective adjusted capital balances.

Requirements:
1. Compute for the adjusted capital balance of PEK on March 1, 2020.
2. Compute for the adjusted capital balance of POK on March 1,2020.
3. Compute for the adjusted capital balance of PEK on December 31, 2020.
4. Compute for the adjusted capital balance of POK on December 31,2020.
5. Compute for the adjusted capital balance of POK after retirement of PEK.
6. Compute for the adjusted capital balance of POK before the incorporation.
7. Number of shares issued to each of the partners.