An allowance for bad debt of 3% of accounts receivable must be established.

Angel, a sole proprietor dealing with buy and sell of used car needed additional funding for her business and accepted Luis as a partner in business on January 1 of the current year. Accounts in the ledger for Angel on December 31 of the most recent year, just before the admission of Luis, show the following balances: Cash P 52,000 Accounts Payable P 124,000 Accounts Receivable 240,000 Angel, Capital 528,000 Inventories 360,000 It is agreed that for purposes of establishing Luis interest, the following adjustments and agreement must be made: a. An allowance for bad debts of 3% of accounts receivable must be established. b. The inventories of used cars for sale is to be valued at their current fair market value amounting to P404,000. c. Prepaid insurance of P13,000 and accrued utilities of P8,000 are to be recognized. d. Luis is to invest sufficient cash to give him 40% interest in the new partnership. Instruction: Prepare adjusting and closing entries in the books of the sole proprietor, and the entries in the new partnership books assuming new books will be used for the partnership.