Harold, Jhon Rey, and Lee Jay were engaged in different businesses.

One day, they agree to combine

their business units into one, hoping that with a bigger amount of capital plus their experience in
business they will attain success.

Despite their capital disparities brought about by the adjustments and revaluations that they proposed,
still they agreed to share profits and losses equally.

The respective ledger balances as of June 30, 2016 are given below:

Harold Jhon Rey Lee Jay

Cash P 30,000 P 70,000 P 40,000
Accounts Receivable 105,000 90,000 70,000
Allowance for Doubtful Accounts (10,000) (9,000) (10,500)
Merchandise 130,000 220,000 100,000
Transportation Equipment 350,000
Accumulated Depreciation (100,000)
Building 650,000
Accumulated Depreciation (50,000)
Land 850,000
Accounts Payable (40,000) (50,000) (45,000)

The Accounts Receivable for each partner should have:

a. an estimated realizable value of P95,000 for Harold.
b. an allowance for doubtful accounts that is increased to 10% of the outstanding receivable for Jhon
Rey.
c. an 85% probability of collection for Lee Jay.

Other non-cash assets are valued at fair market value as follows:

a. Merchandise inventories should have a net realizable value of P130,000 for Harold; P220,000 for
Jhon Rey; and P100,000 for Lee Jay.
b. Transportation equipment should have a net book value of P250,000
c. Building should be carried in the book of the partnership at net book value of P600,000.
d. Land has an appraisal value of P850,000.

The net assets (Total Assets less Total Liabilities) will be transferred to the new partnership book after
their respective new capital balances will be determined.

Required:
1. Compute the capital account balances of the partners prior to partnership formation.
2. Determine the new capital balances of the partners after the revaluation of non-cash assets.
3. Prepare the adjusting entires with the supporting computations for the revaluation of the following:
a. Accounts Receivable
b. Merchandise
c. Transportation Equipment
d. Building
e. Land
4. Opening entry in the new partnership books recording the contribution of the partners.
5. Prepare a Statement of Financial Position right after the formation.