Reference no: EM132959952

Question - On January 2, 2019, Alvarez and Bernales as partners started the Appliance Mart, a sales and service outfit of household appliance. Alvarez invested P30,000 while Bernales put in P15,000. They agreed that profits will be shared 3 parts to Alvarez and 2 parts to Bernales. Their first year of operations resulted in a net income of P4,000.

On January 2, 2020, they decided to invite a third partner, Cortes, who was willing to join the firm and invest P11,000 if he would be allowed a 25% share in profits and an initial interest of 20% in the total capitalization of the firm to be represented by the sum of his contribution plus the book value of the of partner's interest as of December 31,2019. Since these conditions were acceptable to Alvarez and Bernales, Cortes became a partner. Alvarez and Bernales will henceforth divide the remainder of the profit by applying on such remainder the same proportionate profit sharing plan that they have used before.

A summary of the operating results for the following year showed that the firm earned P5.000 net income. Alvarez was dissatisfied with the low return that his investment is earning and expressed his intention to withdraw from the partnership. Bernales and Cortes felt that if Alvarez should withdraw, their capital contributions would be very Inadequate for their needs. Neither were they optimistic about being able to attract others to join them since they were also conscious of the low rate of return that their investments earned. They therefore, suggested that they liquidate the business to which Alvarez agreed. Not one of the partners made withdrawals nor additional investments during the year. On December 31, 2020 the business assets amounted P90,000, included in which is cash of P6,000. An examination of the abilities revealed that P1,000 of the firm's debt is a non-interest bearing loan extended by Bernales to the partnership.

Liquidation proceedings started on the next business day and lump sum sale of the non-cash assets brought in P64,000 more cash.

On the basis of the foregoing data, reconstruct the journal entry or entries which

a) Record the initial investment of the original partners on January 2, 2019.

b) Closed the income and Expense Summary account on December 31, 2019.

c) Recorded the admission of Cortes on January 2, 2020.

d) Closed the income and Expense Summrary account on December 31, 2020.

e) Recorded the liquidation of the partnership business.