1. On July 1, 2020, Royal and Blue decided to pool their assets and form a partnership. After the formation, the partners will participate in the profits and loss ratio of 55% and 45% for Royal and Blue, respectively. Their balance sheets on June 30, 2020, before the required fair value adjustments, were as follows:

RoyalBlue

Cash 13,20021,120

Accounts receivable 86,40096,000

Allowance for doubtful accounts (2,160)(2,400)

Notes receivable 24,000

Inventories 7,6807,200

Prepaid insurance 2,400

Machinery 48,000

Accumulated depreciation (4,800)

Fixed and fixtures 38,400

Accumulated depreciation (2,880)

Total Assets 172,320 159,840

Accounts payable 2,4002,880

Notes payable 24,000

Capital 169,920132,960

Total Liabilities and Capital 172,320 159,840

The firm is to take over the business assets and assume business liabilities. Capitals are to be added based on net assets transferred after the following adjustments:

a. The accounts receivable of Royal and Blue are both fairly valued.

b. Interest at 12% on notes receivable dated June 11, 2020, should be accrued. (Use 360 days)

c. The inventory of Royal should be valued at 7,200, while that of Blue is 6,400.

d. The prepaid insurance of Blue still amounted to 640.

e. The machinery is under-depreciated by 960.

f. The furniture and fixture are overstated by 1,280.

g. Interest at 15% on notes payable dated May 17, 2020, should be accrued. (Use 360 days)

h. Accrued rent receivable of 1,200 is to be recognized in the books of Blue.

Required: Compute for the Capital of each partner under the following:

I. Net Investment Method

II. Bonus Method (Assume that capital interest ratio is 60:40 to Royal and Blue, respectively)

2. On January 1, 2020, Black and Beauty formed a partnership by contributing cash of 36,000 and 24,000, respectively. Beauty was given a 60% interest recorded under the bonus method. On February 1, 2020, partner Black contributed an additional 12,000 to the partnership and on August 1, 2020, partner Black withdrew 6,000 that the partnership agreement classified as excess drawings. On May 1, 2020, partner Beauty contributed equipment with a fair value of 8,000. Partner Beauty had originally purchased the equipment for 12,000 and it had a net book value of 6,000 when contributed. On November 1, 2020, partner Beauty contributed an additional 4,000 cash to the partnership, Drawings made were for payments of monthly salaries.

The partnership agreement has the following provision for the allocation of net profit or (loss) to the partners

a. The interest of 12% on the beginning capital balances during the year

b. Salaries of 2,400 per month to each partner

c. Bonus to Black of 10% of net income after the salaries and the bonus

d. Residual profits (or loss) is to be divided equally

Required: Compute for the Capital balance of each partner at December 31, 2020, assuming a net income of 50,000 during the year.