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Partnership Formation Journal Entries

1. Mulles, the owner of a fertilizer business, formed a partnership called Mulles & Lucena Storage and Sales with Lucena, the owner of a nearby warehouse, to expand operations. 2. The partners agreed to share profits and losses equally and invest equal amounts in the partnership. Lucena contributed land worth $500,000 and a building worth $1,450,000. 3. Journal entries were made to transfer Mulles' assets and liabilities into the new partnership books at agreed upon values, and to record Lucena's capital contribution in cash of $2,393,000 resulting in equal partner capital balances.

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214 views3 pages

Partnership Formation Journal Entries

1. Mulles, the owner of a fertilizer business, formed a partnership called Mulles & Lucena Storage and Sales with Lucena, the owner of a nearby warehouse, to expand operations. 2. The partners agreed to share profits and losses equally and invest equal amounts in the partnership. Lucena contributed land worth $500,000 and a building worth $1,450,000. 3. Journal entries were made to transfer Mulles' assets and liabilities into the new partnership books at agreed upon values, and to record Lucena's capital contribution in cash of $2,393,000 resulting in equal partner capital balances.

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aicsrlcabornay
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A Sole Proprietorship and an Individual with No Business Form a PartnershipMulles,

the owner of a successful fertilizer business, felt that it is time to expand operations.
Mulles offered to form a partnership with Lucena, the owner of a nearby warehouse.
The partnership would be called Mulles & Lucena Storage and Sales. Lucena
accepted Mulles’ offer and the partnership was formed on July 1, 2018.

Presented below is the trial balance for Mulles Fertilizer supply on June 30, 2018

Cash P229,500
Accounts Receivable 210,3000
Allowance for Uncollectible Accounts
P117,000
Inventory 1,012,500
Prepaid Rent 29,250
Store Equipment 390,000
Accumulated Depreciation
97,500
Notes Payable
330,000
Accounts Payable
505,500
Mulles, Capital
2,714,250
Totals P3764250
P3764250

The partners agreed to share profits and losses equally and decided to invest an equal
amount on the partnership.
Lucena and Mulles agreed that Lucena’s land worth P500000 and his building
P1450000. Lucena is to contribute cash in
an amount sufficient to make his capital account balance equal to Mulles.
An agreement is reached by the two partners on the following items:
a. The accounts receivable are to be valued at P1799000 and the allowance for
uncollectible accounts will be eliminated.
b. Inventory is to be decreased by P112500
c. The prepaid rent is for the warehouse used by Mulles. All merchandise will be
transferred to Lucena’s building. No refund will be received on the unused rent
paid in advance.
d. The store equipment has a fair value of P300000
e. All the other assets and liabilities are to be transferred at their book values.

Required:
Prepare the necessary journal entries in the books of Mulles. Also, record the
formation of the partnership in a new set of books.
A. Mulles, Capital 304000
Allowance for Uncollectible Accounts
304000
Allowance for Uncollectible Accounts 117000
Mulles, Capital
117000
B. Mulles, Capital 112500
Inventory
112500
C. Mulles, Capital 29250
Prepaid Rent
29250
D. Mulles, Capital 90000
Store Equipment
90000
E. Mulles, Capital 97500
Accumulated Depreciation
97500

*Mulles
Cash 229500
Accounts Receivable 2103000
Inventory 900000
Store Equipment 300000
Allowance for Uncollectible Accounts
304000
Notes Payable
330000
Accounts Payable
505500
Mulles, Capital
2393000
*Lucena
Cash 2393000
Lucena, Capital
2393000

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