Thomas and James, who were operating separate competing businesses, decided on 1 July 2025 to form a partnership by contributing cash, assets and liabilities of their respective businesses. At that date the fair values of the assets and liabilities were as set out below.

Required

(a) Assuming that Thomas and James agree that their capitals should be equal to the fair value of the net assets contributed, prepare general journal entries to record the formation of the partnership.

(b) If Thomas and James agree that their respective capitals should be $230 000, show the general journal entries to establish the partnership.

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Thomas James Cash at bank $90,000 $100,000 Accounts receivable 12 000 Inventory 45 000 Plant and equipment 90 000 Accounts payable 12 500 7500 40 000 70 000 8000