Reference no: EM133073216

Question - On August 01, 2020, A and B decided to combine their businesses to form a partnership. Their balance sheets on this date before adjustments follow (A and B, respectively):

Cash PHP18,000; PHP7,500

Accounts Receivable 37,000; 27,000

Inventories 60,000; 39,000

Furniture & Fixtures (net) 60,000; 18,000

Office equipment (net) 23,000; 5,500

Prepaid Expenses 12,750; 6,000

TOTAL PHP210,750; PHP103,000

Accounts Payable PHP91,500; PHP36,000

Capital 119,250; 67,000

TOTAL PHP210,750 PHP103,000

The parties agreed that profits and loss be shared 40:60, and that the following adjustments should be considered prior to formation.

A. Provide 5% allowance for doubtful accounts on each Accounts Receivable.

B. Inventories should be recognized only at 80% of their book values.

C. Furniture and fixtures of A is undervalued by PHP25,000 while the Equipment of B is undervalued by PHP3,500.

D. Prepaid expenses of PHP6,000 for A and PHP2,000 for B is to be recognized.

E. Accrued expenses of PHP3,000 for A and PHP1,000 for B is to be recognized.

Required - What is the adjusted capital of A and B upon formation?

A - PHP133,400; B - PHP62,350

A - PHP213,500; B - PHP98,350

A - PHP133,400; B - PHP55,350

A - PHP140,100; B - PHP66,050