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Problem #7 A Sole Proprietorship and An Individual With No Business Form A Partnership

The owner of a fertilizer business, Mulles, formed a partnership called Mulles & Lucena Storage and Sales with the owner of a nearby warehouse, Lucena. They agreed to share profits and losses equally and invest equal amounts. Lucena contributed land worth $500,000 and a building worth $1,450,000. Journal entries were made in Mulles' books to transfer assets and liabilities to the partnership based on agreed upon values. A journal entry was also made to record the formation of the partnership in a new set of books with equal capital contributions from Mulles and Lucena.

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25K views2 pages

Problem #7 A Sole Proprietorship and An Individual With No Business Form A Partnership

The owner of a fertilizer business, Mulles, formed a partnership called Mulles & Lucena Storage and Sales with the owner of a nearby warehouse, Lucena. They agreed to share profits and losses equally and invest equal amounts. Lucena contributed land worth $500,000 and a building worth $1,450,000. Journal entries were made in Mulles' books to transfer assets and liabilities to the partnership based on agreed upon values. A journal entry was also made to record the formation of the partnership in a new set of books with equal capital contributions from Mulles and Lucena.

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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Problem #7

A Sole Proprietorship 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, 2018.

Presented below is the trial balance for Mulles Fertilizer supply on June 30, 2018.

Cash P229500
Accounts Receivable 2103000
Allowance for Uncollectible Accounts P117000
Inventory 1012500
Prepaid Rent 29250
Store Equipment 390000
Accumulated Depreciation 97500
Notes Payable 330000
Accounts Payable 505500
Mulles, Capital 2714250
Totals P3764250 P3764250
The partners agreed to share profits and losses equally and decided to invest an equal amount on the partnership.
Lucena and Mulles agreed that Lucena’s land worth P500000 and his building P1450000. 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 P1799000 and the allowance for uncollectible accounts will be
eliminated.
b. Inventory is to be decreased by P112500
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 P300000
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.
Mulles, Capital 304000
Allowance for Uncollectible Accounts 304000
Allowance for Uncollectible Accounts 117000
Mulles, Capital 117000
Mulles, Capital 112500
Inventory 112500
Mulles, Capital 29250
Prepaid Rent 29250
Mulles, Capital 90000
Store Equipment 90000
Mulles, Capital 97500
Accumulated Depreciation 97500
*Mulles
Cash 229500
Accounts Receivable 2103000
Inventory 900000
Store Equipment 300000
Allowance for Uncollectible Accounts 304000
Notes Payable 330000
Accounts Payable 505500
Mulles, Capital 2393000
*Lucena
Cash 2393000
Lucena, Capital 2393000

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