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    Partnership Formation

    Uploaded by

    Shane Ivory Claudio
    The document provides guidelines for forming partnerships, including recording cash investments at fair value, non-cash investments at agreed value, services at agreed value, and liabilities at fair value. It also describes forming a partnership between individuals with no existing business and forming one between a sole proprietor and individual. The summary is: 1. Fernando and Java agreed to form a partnership, with Fernando contributing $700,000 cash and Java contributing land worth $1,300,000 with a $300,000 mortgage. 2. The journal entries record Fernando's $700,000 cash as an asset and Java's capital, the $1,300,000 land as an asset, and the $300,000 mortgage as

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    Partnership Formation

    Uploaded by

    Shane Ivory Claudio
    25 views2 pages
    The document provides guidelines for forming partnerships, including recording cash investments at fair value, non-cash investments at agreed value, services at agreed value, and liabilities at fair value. It also describes forming a partnership between individuals with no existing business and forming one between a sole proprietor and individual. The summary is: 1. Fernando and Java agreed to form a partnership, with Fernando contributing $700,000 cash and Java contributing land worth $1,300,000 with a $300,000 mortgage. 2. The journal entries record Fernando's $700,000 cash as an asset and Java's capital, the $1,300,000 land as an asset, and the $300,000 mortgage as

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    Original Title

    PARTNERSHIP FORMATION

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    The document provides guidelines for forming partnerships, including recording cash investments at fair value, non-cash investments at agreed value, services at agreed value, and liabilities at fair value. It also describes forming a partnership between individuals with no existing business and forming one between a sole proprietor and individual. The summary is: 1. Fernando and Java agreed to form a partnership, with Fernando contributing $700,000 cash and Java contributing land worth $1,300,000 with a $300,000 mortgage. 2. The journal entries record Fernando's $700,000 cash as an asset and Java's capital, the $1,300,000 land as an asset, and the $300,000 mortgage as

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    25 views2 pages

    Partnership Formation

    Uploaded by

    Shane Ivory Claudio
    The document provides guidelines for forming partnerships, including recording cash investments at fair value, non-cash investments at agreed value, services at agreed value, and liabilities at fair value. It also describes forming a partnership between individuals with no existing business and forming one between a sole proprietor and individual. The summary is: 1. Fernando and Java agreed to form a partnership, with Fernando contributing $700,000 cash and Java contributing land worth $1,300,000 with a $300,000 mortgage. 2. The journal entries record Fernando's $700,000 cash as an asset and Java's capital, the $1,300,000 land as an asset, and the $300,000 mortgage as

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    PARTNERSHIP FORMATION Guidelines in Partnership

    CASH INVESTMENT 1. Adjust


    - Recorded at Fair Value most often known 2. Close
    as Face Value as far as cash valuation is 3. Investment
    concerned 4. Balance Sheet
    Note: If it is a Foreign Currency, it will be valued at
    the current exchange rate Valuation:
    Cash – Fair Value
    NONCASH INVESTMENT Noncash – Agreed Value
    - Recorded at the agreed value which is Service - Agreed Value
    normally the fair value of the property at Liabilities – Fair Value
    the time of investment.
    Note: In case of conflict between agreed value and INDIVIDUALS WITH NO EXISTING BUSINESS
    fair value, agreed value prevails FORMED A PARTNERSHIP

    SERVICES On July 1, 2019, Gerry Fernando and Joanne Jave


    - If this is contributed to the partnership a agreed to form a partnership. The partnership
    memorandum entry is essential if it wero agreement specified that Fernando is to invest cash
    no value agreed upon, otherwise a journal of 700,000 and Java is to contribute land with fair
    entry would be required market value of 1,300,000 with 300,00 mortgages
    to be assumed by the partnership
    LIABILITIES
    - assumed by the partnership should be valued at Required: Prepare the journal entries to record the
    the present value (fair value) of the remaining cash formation of the partnership.
    flow
    Journal Entries:
    A partnership may be formed in any of the
    following ways: Cash 700,000
    1. Individuals with no existing business formed Fernando Capital 700,000
    a partnership
    2. A sole proprietor and an individual without Land 1,300,000
    existing business form a partnership Java Capital 1,000,000
    3. Two or more sole proprietorship formed a Mortgage Payable 300,000
    partnership
    4. Admission or retirement of a partner (there
    is an existing partnership already) A SOLE PROPRIETOR AND AN INDIVIDUAL W/O
    EXISITNG BUSINESS FORM A PARTNERSHIP
    STEPS IN PARTNERSHIP FORMATION
     Book of Proprietor The statement of financial position of Leopoldo
    1. Adjust assets and liabilities in accordance with Medina on October 1, 2019, before accepting
    the agreement Challoner Matero as partners is shown below
    2. Close the books
    Leopoldo Medina
     Books of Partnership Statement of Financial Position
    1. Open the books of partnership October 1, 2019

    Note: Gains, losses, income and expense ASSETS


    adjustment will be reflected directly to "Capital Cash 60,000
    account" Notes Receivable 30,000
    Accounts Receivable 240,000
    Allowance for Bad Debts (10,000)
    Merchandise Inventory 80,000
    Furniture and Fixtures 60,000
    Accum. Depreciation F&F (6,000)
    Total assets 454,000

    LIABILITIES AND EQUITY


    Notes Payable 40,000
    Accounts Payable 100,000
    Medina, Capital 314,000
    Total Liab and equity 454,000

    Adjustments:
    1. Merchandise inventory is to be valued at
    74,000
    2. The accounts receivable is 95% collectible
    3. Interest accrued on the note’s receivable will
    be recognized: 10,000, 12% dated July 1, 2019
    and 20,000, 12% dated August 1, 2019
    4. Interest on notes payable to be accrued at 14%
    annually from April 1, 2019
    5. The furniture and fixtures are to be valued at
    46,000
    6. Office supplies on hand that have been
    charged to expense in the past amounted to
    4,000. These will be used by the partnership

    Recognized: Prepare the journal entries to record


    the formation of the partnership

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