Closing entries in books of blue and royal
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F813c2da5-cc8e-412f-b36d-a81fb17817c0%2F2b3f5649-9764-4350-b992-ca56322cdea9%2Fx5v8nd2_processed.png&w=3840&q=75)
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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