On March 01, 2019, Lara and Neo decided to pool their resources together and form a partnership with Ethan who is willing to invest an amount equal to Lara's investment at fair valuation. The new firm is to take over the two proprietor's business assets and to assume their business liabilities. The balance sheets of Lara and Neo on March 01 before any adjustment are as follows: Lara Neo Cash P 7,500 P 14,500 Accounts Receivable 27,000 22,500 Inventory 18,000 16,000 Furniture & Fixtures 20,000 22,000 Allo. For Depreciation - F&F ( 5,000) ( 4,400) Equipment 35,000 30,000 Allo for Depreciation - Equipment (14,000) (5,200) Total Assets P 88,500 P 95,400 Accounts Payable P 20,700 P 15,000 Capitals 67,800 80,400 Total Liabilities & Capital P 88,500 P 95,400 With the consent of Ethan, Lara and Neo agreed on the following adjustments to set-up their capital balances for the new partnership: Neo is to be allowed a goodwill of P20,000 and is to invest an additional amount to have a 50% interest in the partnership. Lara's inventory is to be valued at P20,000. Accrued expenses of P500 and P700 are to be taken up in the books of Lara and Neo, respectively. An allowance for bad debts of 5% is to be established on customers' accounts of both books. Lara's equipment should be valued at P25,000. The fair market value of the furniture and fixtures on both books is estimated to be 80% of their acquisition costs. The three partners decided to use a new set of books for the partnership and that depreciable assets are to be carried at net subject to new depreciation policy. Prior to partnership formation, the partners drafted the following profit and loss sharing agreement: Annual Salaries of P15,000; P10,000 and P5,000 to partners Lara, Neo and Ethan, respectively. Interest of 10% of their ending capital balances before closing Income Summary account. Bonus of 20% of net income after salaries, interest and bonus but before income tax, to be allowed to Lara, the managing partner. Balance - based on capital ratio. The summary of some pertinent transactions that took place during the first year of operations are as follows: Additional investment made = Lara P10,000 ; Neo P5,000 ; Ethan P5,000. Withdrawals made = Lara P5,000 ; Neo P2,000 ; Ethan P0. Recorded sales during the year = P355,000. Net Purchases during the year = P219,000 Purchases discounts Freight-in = P6,000 Ending Inventory, per count = P41,000 Operating Expenses: Rent Expense = P12,000 Office Salaries = P40,000 Office Supplies = P 6,000 Freight-out = P10,000 Donation = P 2,000 Adjustment data discovered at the end of the year 2019 prior to closing of the books: Salaries in the amount of P5,000 have been incurred but unrecorded. Rent expense paid represents 12-month commencing March 15,2019. The company took a 12-month insurance policy effective April 1, 2019 and paid P5,800 in cash. Office supplies still unused as at December 31, 2019 is P1,500. The partnership has not yet earned P5,000 of sales reported above which goods are out on consignment only but included in the ending inventory per count. The partnership should recognize the annual depreciation expense amounting to P12,000 and P18,000 for Furniture & fixture, and Equipment, respectively but the company failed to record the said depreciation. Income tax rate for a partnership of this type is 30%. The new partnership is named PRECIOUS GEMS Company. Questions: 1. How much additional cash did Neo invested? Correct Answer: 47,325 2. How much is the total cash balance at the partnership formation? Correct Answer: 142,275 3. What is the amount of Lara's share on the net income of the partnership? Correct Answer: 11,585 4. What is the amount of Ethan's share on the net income of the partnership? Correct Answer: 3,251 5. How much is the ending capital of Neo in the financial statement? Correct Answer: 154,819