Reference no: EM132945111

Question - The balance sheet for REH Partnership as of December 31, 20155, is as follows:

Assets Liabilities and Capital

Cash P 7,305 Accounts payable P31,250

Accounts receivable 33,600 Other current liabilities 6,700

Inventory (at cost) 36,250 Long-term note (8% due 2018) 31,050

Land 27,000 Richard, Capital 37,500

Building -net 41,595 Edward, Capital 25,000

Equipment - net 23,250 Harold, Capital 37,500

The partnership, although operating profitably, has had a cash flow problem. Unable to meet their current commitment, the firm borrowed P31, 050 from a bank giving a long-term note. During a recent meeting, the partners decided to obtain additional cash by admitting a new partner to the firm. They feel that the firm is an attractive investment, but that proper management of their liquid assets will be required. Peter agrees to invest cash in the firm if his chief accountant can review the accounting records of the partnership.

The review by the accountants results in the accumulation of the following information:

1. Approximately 10% of the accounts receivable are uncollectible. The old partnership had been using the direct write-off method of accounting for bad debts.

2. Current replacement cost of the inventory is P42, 500.

3. The market value of the land based on a current appraisal is P43, 750.

4. The partners had been using an unreasonably long estimated life in establishing a depreciation policy for the building. On the basis of sound value (current replacement cost adjusted for use), the value of the building is P31, 250.

5. There are unrecorded accrued liabilities of P2, 225.

The partners agree to recognize the foregoing adjustments to the accounts. Richard, Edward, and Harold share profits 40:30:30. After the admission of Peter, the new profit agreement is to be 30:20:30:20. Peter is to receive 30% capital interest in the partnership after he contributes sufficient cash to increase the total capital interest to P110, 000. Because of the uncertainty of the business, no goodwill is to be recognized before or after Peter s admitted.

How much cash Peter must contribute?

a. P2,930

b. P10,000

c. 33,000

d. 33,980