Required: Adjusting entries in the books of royal and blue On January 2, 2017, ROYAL and BLUE decided to pool their assets and form apartnership. After the formation the partners will participate in the profits and loss ratioof 45% and 55% for Royal and Blue, respectively. Their balance sheets on December31, 2017, before the required fair value adjustments, were as follows:ROYALBLUEР 19,200108,000(5,400)30,0009,600P 26,400120,000(6,000)CashAccounts receivableAllowance for bad debtsNotes receivableInventories9,0003,0003,000Prepaid insurancePrepaid expensesMachineryAccumulated depreciationFurniture and fixtures60,000(6,000)48,000Accumulated depreciationTotal assets(3,600)P 215,400 P 199,800Accounts payableNote payableCapitalTotalР 3,000P 3,60030,000212,400166,200P 215,400 P 199,800The firm is to take over business assets and assume business liabilities. Capitals areto be based on net assets transferred after the following adjustments:a. The accounts receivables of ROYAL and BLUE are both fairly valued.b. Interest of P360 are accrued on the notes receivable; and P450 are accrued on thenotes payable.c. The inventory of ROYAL should be valued at P7,200, while that of BLUE, P6,400.d. The prepaid insurance still amounted to P800.e. The machinery is under-depreciated by P960.f. The furniture and fixtures is overstated by P1,280.g. Accrued rent receivable of P1,200 is to be recognized in the books of BLUE.After formation, the new capital of the partnership is based on the adjusted capitalbalance of Royal, so that Blue may either withdraw or invest additional cash to makethe partners' capital balance in proportion to their profits and losses ratio.

Partnership is one of the agreement or arrangement between two or more than two persons, in which…

Answered: Required: Adjusting entries in the…

Business

Accounting

Required: Adjusting entries in the books of royal and blue

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter8: Investing Activities

Section: Chapter Questions

Problem 22PC

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