1. Cash of P250,000

2. Inventories that cost P200,000 using the moving average method accepted by the partnership at its FIFO value of 750% of average cost.
3. Accounts receivable of P450,000 with an allowance for uncollectible accounts of P20,000.

4. Equipment that cost P800,000 with a book value of P300,000 after four years of use without salvage value. The equipment should have been over a 10-year useful life.

Exercise 2 2 (Cash and Net Asset Contribution)

Elma and Lara have decided to form a partnership. Elma invests the assets presented below at their agreed valuation, and also transfers his liabilities to the new firm.

	Ledger Balances	Agreed Valuation
Cash	P400,000	P400,000
Accounts Receivable	170,000	170,000
Allowance for Uncollectible Accounts	(13,000)	(10,000)
Merchandise Inventory	320,000	280,000
Equipment	175,000	125,000
Accumulated Depreciation	30,000	------
Accounts Payable	102,000	102,000
Notes Payable	95,000	95,000

Lara agrees to invest cash for a one-third interest in the firm.

Instructions:

1. Prepare the entries to record the investments of Elma and Lara in the partnerships new set of books.
2. Prepare the entries to adjust and close the balances of accounts on the books of Elma.

   Exercise 2 3 (An Individual and a Previous Sole Proprietor)

   Amor admits Andrea to a partnership interest in his business. Accounts in the ledger of Amor on January 1, 2020 before the admission Andrea, show the following:

   	Debit	Credit
   Cash	P 205,000
   Accounts Receivable	450,000
   Merchandise Inventory	1,450,000
   Accounts Payable		P 495,000
   Amores, Capital		1,610,000

   It is agreed that for the purpose of establishing the interest if Amor, the following adjustment shall be made:

3. 1. An allowance for uncollectible accounts of P22,000 is to be established.
   2. The merchandise is to be valued at P1,500,000.
   3. Prepaid expenses of P70,000 and unrecorded liability of P98,000 are to be recognized.

4. Andrea is to invest sufficient cash for an equal interest in the partnership.

   Instructions:

5. Assuming the new partnership will use the books of Amor, give the entries to adjust the account balances of Amor and to record the investment of Andrea.
6. Assuming the new partnership will open new set of books, give the entries to record the investment of Amor and Andrea.
7. Prepare a statement of financial position for the new partnership.

8. Exercise 2 4 (Cash and Non-cash Contributions; Bonus)

   Aguas and Ara have decided to form a partnership. Aguirre contributes cash of P800,000 and Ara contributes land with a fair market value of P600,000 and a building with a fair market value of P1,300,000. Ara purchased the land and building five years ago for P750,000. Aras book value of the land is P275,000 and the book value of the building is P650,000. The P1,300,000 mortgage on the land and building is to be assumed by the partnership. The partners agree to share profits and losses in the ratio of 3:2 respectively.

   Instructions: Prepare the journal entries to record the formation of the partnership under each of the following independent assumptions:

9. 1. Each partner is credited for the full amount of net assets invested.
   2. Each partner initially is to have equal interest in partnership capital.
   3. Each partner is credited in accordance with their P& L ratio.