Name:

PARCOR – Exercises on Partnership Formation

PROBLEM 1

Below is the balance sheet of Yuji Itadori Co, on Nov 30 20x2 before accepting Jennifer Lawrence as his partner to form
JJK Partnership:

YUJI ITADORI CO.

BALANCE SHEET
November 30, 20x2

ASSETS
Cash 100,000.00
Accounts Receivable 40,000.00
Less: Allowance for Bad Debts 2,500.00 37,500.00
Notes Receivable 50,000.00
Merchandise Inventory 22,500.00
Equipment 60,000.00
Less: Accumulated Depreciation 5,000.00 55,000.00
TOTAL ASSETS 265,000.00

LIABILITIES AND CAPITAL

Accounts Payable 10,000.00
Notes Payable 50,000.00
H, Capital 205,000.00
TOTAL LIABILITIES AND CAPITAL 265,000.00

It is agreed that for purpose of establishing Yuji Itadori’s interest the following adjustments shall be made:

a. The accounts receivable is estimated to be 90% realizable.

b. Interest at 8% on notes receivable dated March 1, 20x2 is to be accrued.
c. The merchandise inventory is to be valued at 17,500.
d. The equipment is under-depreciated by 4,000.
e. Prepaid expenses of 2,000 and accrued expenses of 6,000 are to be recognized.

Jennifer Lawrence is to invest cash to obtain one-third interest in the partnership.

What is the journal entry to record the investment of Jennifer Lawrence?

PROBLEM 2

On October 1, 20x4, Tanjiro and Zenitsu decided to pool their assets and form a partnership. The firm is to take over the
business assets and assume business liabilities, and capitals are to be based on net assets transferred after the following
adjustments:

a. Tanjiro’s inventory amounting to 10m000 is worthless, Zenitsu’s agreed value of inventory amounted to
125,000.
b. Uncollectible accounts of 6,000 for Tanjiro is to be provided, a 5% allowance is to be recognized in the books
of Zenitsu.
c. Accrued rent income of 10,000 on Tanjiro, and accrued salaries of 8,000 on Zenitsu should be recognized in
their respective books.
d. Interest at 16% on Notes receivable dated August 17, 20x4 should be accrued.
e. The office supplies unused amounted to 20,000.
f. The equipment’s agreed value amounted to 50,000.
g. The furniture and fixtures has fair market value of 90,000.
h. Interest at 12% on Notes payable dated July 1, 20x4 should be accrued. Use 260 days a year.
i. Zenitsu has an unrecorded patent amounting to 40,000.

Balance Sheets for Tanjiro and Zenitsu on October 1, 20x4 before adjustments are given below:

TANJIRO ZENITSU
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 - F&F - 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 LIAB AND CAPITAL 493,000.00 460,000.00

Assuming the partnership uses a new set of books, what are the journal entries to record Tanjiro’s and Zenitsu’s
investments?
PROBLEM 3

The following are being invested to form Spirits and Such Partnership:

Agreed Values
Shigeo Reigen
Cash 100,000.00 100,000.00
Inventory 100,000.00
Land 200,000.00
Building 400,000.00
Equipment 200,000.00
Mortgage on building to be assumed -200,000.00
400,000.00 500,000.00

Assuming that Shigeo and Reigen agree that each partner is to receive an equal capital interest, how much is
Shigeo’s Capital using the Bonus Method? How much is Reigen’s Capital using Goodwill method?

PROBLEM 4

On December 31, 20x2, the balance sheet of SpyXFamily Company, owned by Loid Forger, appeared as follows

SpyXFamily Company
BALANCE SHEET
December 31, 20x2

ASSETS
Cash 34,500.00
Accounts Receivable 55,000.00
Notes Receivable 21,000.00
Inventories 57,500.00
Land 120,000.00
Equipment 80,000.00
Less: Accum Dep - Equip 56,000.00 24,000.00
Building 245,000.00
Less: Accum Dep - Bldg 30,000.00 215,000.00
TOTAL ASSETS 527,000.00
 LIABILITIES AND CAPITAL
Accounts Payable 40,000.00
Notes Payable 12,500.00
Loid Forger, Capital 474,500.00
TOTAL LIABILITIES AND CAPITAL 527,000.00

Loid Forger and Yor Briar agreed to form a partnership, with Loid Forger investing his company. The following are their
agreements:

a. Set up 10% of the accounts receivable as doubtful accounts.

b. Inventories should be adjusted to 85% of its book value.
c. Equipment should be adjusted to its fair market value of 20,000.
d. Land has an appraised value pf 150,000.
e. Accrued expenses should be set up in the amount of 2,500.
f. Yor Briar will be investing enough cash to make the total agreed capitalization of 800,000. Loid Forger will be
credited for a 70% equity of the agreed capitalization.

What is the journal entry to recognize the bonus capital to/from Loid Forger?