On March 1, 2020, EE and FF decided to combine their business and form a partnership. Their balance sheets on March 1 before adjustments showed the following: EE FF CASH 90,000 37,500 ACCOUNTS RECEIVABLE 185,000 135,000 INVENTORIES 300,000 1965,000 FURNITURE AND FIXTURES 350,000 100,000 ACCUMULATED DEPRECIATION (50,000) (10,000) OFFICE EQUIPMENT 115,000 27,500 PREPAID EXPENSES 63,750 30,000 TOTAL 1,053,750 515,000 ACCOUNTS PAYABLE 457,500 180,000 EE, CAPITAL 596,250 FF, CAPITAL 335,000 TOTAL 1,053,750 515,000 They agreed to have the following items recorded in their books: 1. Provide 2% allowance for doubtful accounts. 2. EE’s furniture and fixtures should be P310,000, while FF’s office equipment is underdepreciated by P2,500. 3. Rent expense incurred previously by EE was not yet recorded amounting to P10,000, while salary expenses incurred by FF amounting to P8,000 was also not recorded. 4. The fair value of EE’s and FF’s inventory amounted to P295,000 and P210,000 each respectively. If If the partners are to share profits and losses in the ratio of 6:4 and their capital is top reflect this relationship with EE’s capital to be used as basis, what is the capital of FF after the formation?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On March 1, 2020, EE and FF decided to combine their business and form a partnership. Their balance sheets on March 1 before adjustments showed the following:

	EE	FF
CASH	90,000	37,500
ACCOUNTS RECEIVABLE	185,000	135,000
INVENTORIES	300,000	1965,000
FURNITURE AND FIXTURES	350,000	100,000
ACCUMULATED DEPRECIATION	(50,000)	(10,000)
OFFICE EQUIPMENT	115,000	27,500
PREPAID EXPENSES	63,750	30,000
TOTAL	1,053,750	515,000

ACCOUNTS PAYABLE	457,500	180,000
EE, CAPITAL	596,250
FF, CAPITAL		335,000
TOTAL	1,053,750	515,000

They agreed to have the following items recorded in their books:

1. Provide 2% allowance for doubtful accounts.
2. EE’s furniture and fixtures should be P310,000, while FF’s office equipment is underdepreciated by P2,500.
3. Rent expense incurred previously by EE was not yet recorded amounting to P10,000, while
salary expenses incurred by FF amounting to P8,000 was also not recorded.
4. The fair value of EE’s and FF’s inventory amounted to P295,000 and P210,000 each respectively.

If If the partners are to share profits and losses in the ratio of 6:4 and their capital is top reflect this relationship with EE’s capital to be used as basis, what is the capital of FF after the formation?

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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