COMPREHENSIVE PROBLEM

LeBron James and Anthony Davis formed a partnership on July 1, 2021. LeBron invested P50,000 cash, inventory valued at P55,000, and equipment valued at P150,000. Anthony invested P50,000 cash and land valued at P150,000. The partnership assumed the P50,000 mortgage on the land. At the end of the year, their properties were adjusted accordingly; increase inventory to P60,000 and land by P50,000.

On June 30, 2022, the partnership reported a net income of P100,000. The partnership contract specified that income and losses were to be allocated by allowing 15% interest on their 2021 ending capital balances, salaries of 15% to LeBron and 10% to Anthony on net income, additional bonus to LeBron of 30% after interest, salaries and bonus and the remainder to be divided in the ratio of 60:40.

On July 1, 2022, Russell Westbrook was admitted into the partnership with a P140,000 cash investment. Russell was given a 30% interest in the partnership because of his special skills. The partners elect to use the bonus method to record the admission. Any bonus should be divided in the old ratio of 60:40.

On June 30, 2023, the partnership reported a net loss of P100,000. The new partnership contract stipulated that income and losses were to be divided in a fixed ratio of 50:30:20.

On July 2, 2023, LeBron withdrew from the partnership for personal reasons. LeBron was given P150,000 cash and a P80,000 note for his capital interest.

Required: Prepare journal entries for each of the following events. Show computations.

1. Formation of the partnership.

2. Distribution of the net Income for the first year.

3. Admission of Russell into the partnership.

4. Distribution of the net loss for the second year.

5. Withdrawal of LeBron from the partnership.