A Sole Proprietor and an Individual with No Business Form a Partnership
Mulles, the owner of a successful fertilizer business, felt that it is time to expand operations. Mulles offered to form a partnership with Lucena, the owner of a nearby warehouse. The partnership would be called Mulles & Lucena Storage and Sales. Lucena accepted Mulles' offer and the partnership was formed on July 1, 2004.
Presented below is the trial balance for Mulles Fertilizer Supply on June 30, 2004:
Cash
Accounts Receivable
Allowance for Uncollectible Accounts
Inventory
Prepaid Rent
Store Equipment
Accumulated Depreciation
Notes Payable
Accounts Payable
Totals
P 229,500
2,103,000
1,012,500
29,250
390,000
P 117,000
97,500
Mulles, Capital
P3,764,250
2,714,250
P3,764,250
The partners agreed to share profits and losses equally and decided to invest an equal amount in the partnership. Lucena and Mulles agreed that Lucena's land is worth P500,000 and his building P1,450,000. Lucena is to contribute cash in an amount sufficient to make his capital account balance equal to Mulles.
An agreement is reached by the two partners on the following items:
a. The accounts receivable are to be valued at P1,799,000 and the allowance for uncollectible accounts will be eliminated.
b. Inventory is to be decreased by P112,500.
c. The prepaid rent is for the warehouse used by Mulles. All merchandise will be transferred to Lucena's building. No refund will be received on the unused rent paid in advance.
d. The store equipment has a fair value of P300,000.
e. All the other assets and liabilities are to be transferred at their book values.
Required:
Prepare the necessary journal entries in the books of Mulles. Also, record the formation of the partnership in a new set of books
