Question

Angel, a sole proprietor dealing with buy and sell of used car needed additional funding for her
business and accepted Luis as a partner in business on January 1 of the current year. Accounts
in the ledger for Angel on December 31 of the most recent year, just before the admission of
Luis, show the following balances:
Cash                            P 52,000
Accounts Payable     P 124,000
Accounts Receivable 240,000
Angel, Capital             528,000
Inventories                   360,000
It is agreed that for purposes of establishing Luis’ interest, the following adjustments and
agreement must be made:
a. An allowance for bad debts of 3% of accounts receivable must be established.
b. The inventories of used cars for sale is to be valued at their current fair market value
amounting to P404,000.
c. Prepaid insurance of P13,000 and accrued utilities of P8,000 are to be recognized.
d. Luis is to invest sufficient cash to give him 40% interest in the new partnership.

1. Present the entries of angel to adjusr her accounts in accordance to the agreement made with luis
2. In a T-account, post the adjustments and establish the adjusted balance of angel prior to the investment of luis
3. Present the closing entries in Angel's books.
4. Present the entry to record the investment of angel in the books of the partnership.
5. Present the entry to record the investment of luis in the books of the partnership.
6. Prepare a statement of financial position for the partnership

Answer 1