Problem 2

Cha and Kim are partners in a business in the hotel industry organized in 2019. Profits are shared 1:1, respectively. Their capital balances as of December 31, 2020 were P600,000 and P400,000, respectively. Drawing accounts are always closed yearly to the capital accounts. They agreed to admit Jang upon payment of

P400,000 for a 40% interest from Cha on July 1, 2021. Before admission, they agreed to update their capital accounts for the following:

Net income of P300,000 for the first half of 2021

Monthly drawings of P25,000 and P20,000 were made by Cha and Kim, respectively

Revalue equipment acquired at cost of P300,000, book value of P210,000 and a fair market value equal to 80% of its cost

Use the information in Problem 2.

What is the capital balance of Cha before admission of Jang?

Use the information in Problem 2.

What is the capital balance of Kim before admission of Jang?