Reference no: EM132770294

Accounting for Partnership Red and White Partnership

The partnership of Red and White admits Blue as a partner on January 1, 20CY. The partnership has the following balances on December 31, 20PY:

Balance Sheet

December 31, 20PY

Assets                                      Liabilities and Owner's Equity

Cash 450,000                       Accounts Payable P2,500,000

Other Assets 5,500,000         Red, Capital 2,250,000

White, Capital 1,200,000

Total Assets P 5,950,000          Total Liabilities and Owner's Equity P 5,950,000

Profits and losses for Red is 60% and 40% for White, respectively.

Requirements:

Problem 1. Suppose Blue pays White P1,500,000 to buy out White. Red approves Blue as a partner.

a. Record the transfer of equity on the partnership books on January 1, 20CY.

b. Prepare the partnership balance sheet immediately after Blue is admitted as a partner.

Problem 2. Suppose Blue becomes a partner by investing P1,550,000 cash on January 1, 20CY to acquire a 1/4 interest in the business.

a. Compute Blue's capital balance, and determine whether there's any bonus. If so, who gets the bonus?

b. Journalize Blue's investment in the business.

c. Prepare the partnership balance sheet immediately after Blue is admitted as a partner. Include the heading.

Problem 3. Assume that Red and White partnership liquidates by selling its other assets for P5,000,000. Prepare the entries to liquidate the partnership on January 1, 20CY.