Problem #5 Two Sole Proprietors Form a Partnership Medina and Dalangin are fierce competitors who sell hunting equipment. They finally decided to join forces in order to increase their business and reduce costs. An agreement is reached between the two to begin operations as a partnership on Mar. 1, 2021. Medina and Dalangin have decided to share profits or losses in the ratio of 60:40, respectively. The statements of financial position of Medina and Dalangin as at Mar. 1, 2021 are as follows: Medina P 42,000 389,200 (22,400) 461,600 Dalangin P 30,000 169,200 (14,400) 300,800 6,000 4,000 Cash Accounts Receivable Allowance for Uncollectible Accounts Merchandise Inventory Prepaid Rent Office Supplies Land Building Accumulated Depreciation Office Equipment Accumulated Depreciation Repair Equipment Accumulated Depreciation Total Assets 30,400 40,000 128,000 (32,000) 24,000 (6,000) 172,000 (68,000) P1,158,800 62,000 (13,200) P544,400 Notes Payable Accounts Payable Mortgage Payable Medina, Capital Dalangin, Capital Total Liabilities and Owners' Equity P 120,000 170,000 200,000 668,800 P111,600 P1,158,800 432,800 P544,400 Partnerships: Basic Considerations and Formation | 477 The name of the partnership will be Medina and Dalangin Hunting Gears. The partners have agreed to effect the following adjustments: a. Medina's merchandise inventory is to be reduced by P105,200. The inventory of Dalangin will be increased by P7,200. b. The following are the fair market values of the various assets: Medina Dalangin Land P108,000 Building 192,000 Office Equipment 16,000 P40,000 Repair Equipment 124,000 C. One-half of the notes payable of Medina are personal notes. All other liabilities of the partners are assumed by the partnership. d. The prepaid rent in the books of Dalangin will be consumed by the partnership. Required: Prepare the journal entries to record the formation of the partnership