Reference no: EM132729013

Question - On June 30, 2019 GH, the sole proprietor of the Hawk Company, expands the company and establish a partnership with IJ and KL. The partners plan to share profits and losses as follows: GH, 50%; IJ, 25% and KL, 25%. They also agree that the beginning capital balances of the partnership will reflect this same relationship.

GH asked IJ to join the partnership because his many business contacts are expected to be valuable during the expansion. IJ is also contributing P70,000 cash and a building that has an original cost of P910,000, book value of P735,000, tax basis of P542,500 and a fair market value of P647,500. The building is subject to a P423,500 mortgage that the partnership will assume. KL is contributing P115,500 cash and marketable securities costing P441,000 to KL but are currently worth P603,750.

GH investment in the partnership is the GH Company, he plans to pay off the notes with his personal assets. The other partners have agreed that partnership will assume the accounts payable. The balance sheet for the GH Company follows:

GH Company Balance Sheet June 30, 2010

Assets

Liabilities and Capital

Cash P105,000

Accounts payable P 556,500

Accounts receivable, net 504,000

Notes payable 651,000

Inventory 756,000

GH, capital 892,500

Equipment * 735,000

Total assets P2,100,000

Total Liabilities and Capital P1,200,000

* net of accumulated depreciation of P210,000

The partners agree that the inventory is worth P892,500, and the equipment is worth half its original cost, and the allowance established for doubtful accounts is correct.

Required -

How much is the agreed capital of GH if the partners agree to use the bonus method to record the formation?

What is the total assets of the partnership?

What is the amount of capital credit to IJ using the net investment method?

If the partners agree to invest or withdraw additional cash and use as base the capital of KL, what is the partnership cash after the formation?