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Closing entries in books of blue and royal

Closing entries in books of blue and royal

FINANCIAL ACCOUNTING
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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Required: Closing entries in books of blue and royal
On January 2, 2017, ROYAL and BLUE decided to pool their assets and form a partnership. After the formation the partners will participate in the profits and loss ratio of 45% and 55% for Royal and Blue, respectively. Their balance sheets on December 31, 2017, before the required fair value adjustments, were as follows: ROYAL BLUE Р 19,200 108,000 (5,400) 30,000 9,600 P 26,400 120,000 (6,000) Cash Accounts receivable Allowance for bad debts Notes receivable Inventories 9,000 3,000 3,000 Prepaid insurance Prepaid expenses Machinery Accumulated depreciation Furniture and fixtures 60,000 (6,000) 48,000 Accumulated depreciation Total assets (3,600) P 215,400 P 199,800 Accounts payable Note payable Capital Total Р 3,000 P 3,600 30,000 212,400 166,200 P 215,400 P 199,800 The firm is to take over business assets and assume business liabilities. Capitals are to 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 the notes 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 capital balance of Royal, so that Blue may either withdraw or invest additional cash to make the partners' capital balance in proportion to their profits and losses ratio.
Transcribed Image Text:On January 2, 2017, ROYAL and BLUE decided to pool their assets and form a partnership. After the formation the partners will participate in the profits and loss ratio of 45% and 55% for Royal and Blue, respectively. Their balance sheets on December 31, 2017, before the required fair value adjustments, were as follows: ROYAL BLUE Р 19,200 108,000 (5,400) 30,000 9,600 P 26,400 120,000 (6,000) Cash Accounts receivable Allowance for bad debts Notes receivable Inventories 9,000 3,000 3,000 Prepaid insurance Prepaid expenses Machinery Accumulated depreciation Furniture and fixtures 60,000 (6,000) 48,000 Accumulated depreciation Total assets (3,600) P 215,400 P 199,800 Accounts payable Note payable Capital Total Р 3,000 P 3,600 30,000 212,400 166,200 P 215,400 P 199,800 The firm is to take over business assets and assume business liabilities. Capitals are to 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 the notes 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 capital balance of Royal, so that Blue may either withdraw or invest additional cash to make the partners' capital balance in proportion to their profits and losses ratio.
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