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Chapter 2 #2

The partners San Mateo and Caballes formed an equal partnership on June 30. San Mateo contributed assets and liabilities from his proprietorship, while Caballes contributed cash equal to the market value of San Mateo's contribution. The partnership earned $450,000 over the rest of the year, with San Mateo receiving two-thirds and Caballes one-third of profits. Journal entries were made to record the initial contributions and investments and to close income and drawings accounts.

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14K views2 pages

Chapter 2 #2

The partners San Mateo and Caballes formed an equal partnership on June 30. San Mateo contributed assets and liabilities from his proprietorship, while Caballes contributed cash equal to the market value of San Mateo's contribution. The partnership earned $450,000 over the rest of the year, with San Mateo receiving two-thirds and Caballes one-third of profits. Journal entries were made to record the initial contributions and investments and to close income and drawings accounts.

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Problem #2

Formation and Operations of a Partnership

On June 30, San Mateo and Caballes formed a partnership. The partners agreed to invest equal amounts of capital. San
Mateo invested his proprietorship’s assets and liabilities as follows:

San Mateo’s
Book Value Fair Market Value
Accounts Receivable P72000 P72000
Allowance for Uncollectible Accounts - 10500
Merchandise Inventory 223400 241000
Prepaid Expenses 17000 17000
Office Equipment 459000 276000
Accumulated Depreciation 153000 -
Accounts Payable 191000 191000
On June 30, Caballes invested cash in an amount equal to the current market value of San Mateo’s partnership capital.
San Mateo, the managing partner, would earn two-thirds of partnership profits. Caballes agreed to accept one-third of
the profits.

During the remainder of the year, the partnership earned P450000. The temporary withdrawals of San Mateo and
Caballes were P352000 and P230000, respectively.

Required:

1. Journalize the partners’ initial investment in new set of books.


2. Prepare the partnership’s statement of financial position immediately after its formation on June 30.
3. Journalize the entries to close the income summary and the drawing accounts.

1.
*San Mateo
Accounts Receivable 72000
Merchandise Inventory 241000
Prepaid Expenses 17000
Office Equipment 276000
Allowance for Uncollectible Accounts 10500
Accounts Payable 191000
San Mateo, Capital 404500
*Caballes
Cash 404500
Caballes, Capital 404500
2.
San Mateo and Caballes
Statement of Financial Position
June 30,2018
ASSETS
Cash 404500
Accounts Receivable 72000
Allowance for Uncollectible Accounts (10500) 61500
Merchandise Inventory 241000
Prepaid Expenses 17000
Office Equipment 276000
TOTAL ASSETS 1000000
LIABILITIES AND PARTNER’S EQUITY
Accounts Payable 191000
San Mateo, Capital 404500
Caballes, Capital 404500
TOTAL LIABILITIES AND PARTNER’S EQUITY 1000000

3.
Income Summary 450000
San Mateo, Drawing 300000
Caballes, Drawing 150000
San Mateo, Capital 52000
San Mateo, Drawing 52000
Caballes, Capital 80000
Caballes, Drawing 80000

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