Module 4

CHANGE IN OWNERSHIP
(DISSOLUTION)
 LEARNING OUTCOMES
1. Explain dissolution and its effect on the partnership.
2. Describe the different causes of dissolution.
3. Record the change in ownership and revise the partners’
equity.
4. Explain the concept of asset revaluation, bonus and
goodwill.
 Dissolution
Dissolution
• Occurs when there is change in ownership or relationship among the
partners.
• A partner may want to disassociate from carrying on business with
the partners and sell his share to the remaining partners or to new
partners.
• Other ways of dissolving a partnership and revising ownership over it
are the following:
a. Partners decide to admit new partners.
b. A partner decides to retire.
 Dissolution
Dissolution
• Other ways of dissolving a partnership and revising
ownership over it are the following:
a. Partners decide to admit new partners.
b. A partner decides to retire.
c. A partner dies.
d. Partners decide to incorporate.
 Dissolution
Dissolution
• Expansion, infusion of more capital, special skills, all needed to
strengthen competitive position are some reason why partners
may decide to admit a new partner or convert this into a
corporation.
• A partner who is dissatisfied with the way the business is
operating may decide to cut relation on carrying on business
with the other partners.
 Dissolution
Dissolution Defined – Article 1828 of the civil code
• Change in relation of the partners ceasing to be associated in
carrying on the business. The legal provisions (Articles 1830
and 1831) further gives us causes of dissolution:
1. By acts of the partners, like when an event makes it illegal
for the business to be carried on, or when a partner becomes
insolvent or dies, or by the civil interdiction of any one of the
partners.
 Dissolution
Dissolution Defined – Article 1828 of the civil code
2. By operation of law, like when an event makes it illegal
for the business to be carried on or when a partner
becomes insolvent or dies, or by the civil interdiction of
any one of the partners.
3. By judicial degree, like insanity of a partner or
commission of fraud by a partner or by the internal
dissension among partner.
 Dissolution
• Dissolution does not necessarily terminate the basic business
operation of the partnership except for the change in ownership.
• The change in the ownership structure of the partnership dissolves
the existing partnership with the creating of a new partnership.
• The accountant refers to the articles of Co-partnership for the
agreement on how the dissolution shall be implemented and may also
advise the partners in the structuring of the buy/sell agreement.
• The accountant records the dissolution accordingly and revises the
partners’ equity.
 Accounting Procedures Just Before Dissolution
1. Update the capital accounts of the existing partners as of dissolution
date by revaluating the partnership assets, determining the profit
share of the partners from the last statement of financial position to
dissolution date, and closing their drawing accounts.
2. If the dissolution contemplated upon was not provided for in the
articles, the terms and conditions for the dissolution should ascertained
from the partners.
3. Record the dissolution or change in ownership and revise the partners’
equity.
 Articles of Co-Partnership Redrawn
• It is important to redraw the Articles of Co-Partnership upon
dissolution since some provisions will be affected such as:
• Names of the partners and their contribution.
• Manner of management.
• Duties and responsibilities of each partner.
• Profit and loss sharing ratio.
• Manner of dissolving or liquidating the partnership.
 Updating Partners’ Equity Before Dissolution
Illustration: Assume that A and B of AB Tours and Travel decide to
dissolve the partnership and admit C as a new partner on March 31. The
following were agreed by the partners: 1. revalue the land by P262,500
and 2. distribute the profit reported by the accountant for the first
quarter amounting to P300,000. Additionally, cash withdrawals made
during the first quarter of the year amounts to P25,000 for each partner.
As of January 1, three months before dissolution date, records show their
capital accounts as P400,000 for A and P600,000 for B. The articles of
co-partnership provided profit distribution based on capital contribution.
 Updating Partners’ Equity Before Dissolution
The accountant prepared the following entries:
a. Land 262,500
A, Capital 105,000
B, Capital 157,500
Adjust the undervaluation of land
A (400,000/1,000,000 x P262,500) 105,000
B (600,000/1,000,000 x P262,500) 157,500
 Updating Partners’ Equity Before Dissolution
The accountant prepared the following entries:
b. Income Summary 300,000
A, Drawing 120,000
B, Drawing 180,000
to record the profit share of the partners.
A (4/10 x P300,000) 120,000
B (6/10 x P300,000) 180,000
 Updating Partners’ Equity Before Dissolution
The accountant prepared the following entries:
c. A, Drawing 95,000
B, Drawing 155,000
A, Capital 95,000
B, Capital 155,000
To close the drawing accounts: profit share.
A (120,000-25,000) = 95,000
B (180,000-25,000) = 155,000
 Admission of a New Partner
Admission of a new partner may take place in one of two ways:
1. Purchasing an interest from one or more existing partners.
2. Investing cash or other assets in the partnership.
 Purchase an Interest from Existing Partners
• A new partner may purchase a partnership interest from one of
more existing partners.
• A capital account is set up for the new partner by transferring
interest equal to the portion purchased from the existing
partner(s).
• This transaction is a personal transaction between the existing
partner(s) and the new partner.
 Purchase an Interest from Existing Partners
Case 1: Transfer of interest is equal to the amount paid.
L paid S P10,000 to purchase half of her interest in the retail business owned by A
and S whose capital balances are P30,000 and P20,000, respectively. A and S
shares profits and losses 3/5 and 2/5, respectively. Observe the following:
The analysis will affect the following accounts in this manner:
1. The payment goes to S, not to the partnership. Partnership asset will not
change.
2. The purchase requires a transfer of capital from S to L for P10,000.
3. The total partners’ equity of P50,000 will not change although there will be a
change in the composition of the partners’ equity.
 Purchase an Interest from Existing Partners
Case 1: Transfer of interest is equal to the amount paid.
Entry:
S, Capital 10,000
L, Capital 10,000
 Purchase an Interest from Existing Partners
Case 2: Transfer of interest is not equal to the amount paid.
Suppose that in the above case, L pays P15,000 for half of S’s
interest of P10,000.
• Same entry with case 1.
• Payment does not affect the partnership assets since the amount
paid goes to the selling partner.
Entry:
S, Capital 10,000
L, Capital 10,000
 Purchase an Interest from Existing Partners
Asset Revaluation
• The partners may agree to revalue the assets before
admission of a new partner.
• Upward and downward adjustment of partnership assets
should affect only the existing partners.
• Upward adjustment should be made to increase asset and
partners’ equity.
• Downward adjustment should be made to decrease asset and
partners’ equity.
 Purchase an Interest from Existing Partners
Case 3. Asset Revaluation (Upward adjustment)
Refer to case 2. L agrees to pay P15,000 for half of S interest but the
assets must first be revalued. It the amount of the revaluation is not
given, it can be inferred from the amount the new partner is willing to
give.
Analysis:
1. Since the payment is higher by P5,000 than the book value of the
interest being purchased of P10,000, the implication is that the assets of
the partnership are undervalued. Asset valuation will be based on the
amount that the new partner is willing to pay.
 Purchase an Interest from Existing Partners
Case 3. Asset Revaluation (Upward adjustment)
 Purchase an Interest from Existing Partners
Case 3. Asset Revaluation (Upward adjustment)
Analysis:
2. Adjust the existing partners’ equity by P25,000. Partners’
equity will be P75,000 after the revaluation with S’s adjusted
capital as P30,000. This will now be the basis for transferring
capital to L. Since the amount to be paid is P15,000 was used as
the basis for revaluation, it will also be the amount for the transfer
of interest.
 Purchase an Interest from Existing Partners
Case 3. Asset Revaluation (Upward adjustment)
Analysis:
3. Partners’ Equity after the revaluation will not change anymore in
recognizing transfer of capital from the selling partner to the buying
partner.
 Purchase an Interest from Existing Partners
Case 3. Asset Revaluation (Upward adjustment)
Analysis:
3. Assume that the land is the asset to be revalued, two entries will be required:
Land 25,000
A, Capital 15,000
S, Capital 10,000

S, Capital 15,000
L, Capital 15,000

• Revaluation must be agreed upon by the partners and cannot be implied.

 Revised Profit and Loss Ratio
It is necessary that the articles of co-partnership be redrawn on
consideration of the admission of a new partner. Likewise, a new
management as to managerial functions, division of profit and loss
and the inclusion of the new partner are to be considered.
 Investing in a Partnership
• New agreement as to managerial functions, division of profit
and loss and the inclusion of the new partner are to be
considered.
• Current profit and loss ratio should be revised accordingly based
on the percent of interest the existing partner is selling to the
buyer if revision was not considered.
 Investing in a Partnership
A new partner may be admitted by investing assets in the existing
partnership.

The following rules should be applied:

1. Since the new partner is contributing to the partnership, the
transaction is between the new partner and the partnership.
2. Contribution increases the partnership assets and the
partner’s equity.
 Investing in a Partnership
Case 4: New partner’s investment is equal to his capital credit,
total contributions is equal to agreed or revised equity.
Assuming L will invest P25,000 cash and will be given a 1/3
interest in the partnership agreed equity of P75,000.
The analysis will affect the following accounts in this manner:
1. Partnership assets and partners’ equity will increase by
P25,000,
 Investing in a Partnership
Case 4: New partner’s investment is equal to his capital credit,
total contributions is equal to agreed or revised equity.
The analysis will affect the following accounts in this manner:
1. Partnership assets and partners’ equity will increase by
P25,000,
 Investing in a Partnership
Case 4: New partner’s investment is equal to his capital credit, total
contributions is equal to agreed or revised equity.
The analysis will affect the following accounts in this manner:
2. Total contribution will be equal to total agreed partners’ equity
3. New partner receives a 1/3 interest in the total partner’s equity of
P75,000
4. Entry to record the investment will be:
Cash 25,000
L, Capital 25,000
L invested cash for a 1/3 interest.
 Investing in a Partnership
Case 5: New partner’s contribution is equal to his capital credit. Current
partners agree to revalue the asset.
Lucas will invest P30,000 cash for a 30% interest in the net assets of the
partnership. Partnership assets should be revalued first by P20,000.

1. The partnership asset will increase twice: for the revaluation and for the cash
investment .
2. Asset revaluation should be recorded first before admitting the new partner. It
should be based on the agreed profit ratio for the existing partners or the
capital ratio if there is no agreed profit ratio.
3. New partner’s equity is equal to what was invested.
 Investing in a Partnership
Case 5: New partner’s contribution is equal to his capital credit.
Current partners agree to revalue the asset.
 Investing in a Partnership
Case 5: New partner’s contribution is equal to his capital credit. Current
partners agree to revalue the asset.
Assuming land is to be revalued, two entries will be prepared.
Land 20,000
A, Capital 12,000
S, Capital 8,000
Adjust the land based on contributed capital ratio.

Cash 30,000
L, Capital 30,000
L invested cash for a 30% interest over the partnership
 Investing in a Partnership
Bonus
• Bonus from the new partner may be required by the existing partners
as a privilege of joining the firm when current value of the partnership
is more that the stated amounts of the equity of the existing partners.
• Excess contribution called bonus capital will be created to the existing
partners’ capital account.
• Bonus from the existing partners may be given to the new partner to
entice the new partner who has exceptional talents.
• The capital credit of the new partner will be higher that the amount of
contribution. The excess capital is taken from the capital of the existing
partners and given to the new partner.
 Investing in a Partnership
Case 6. Capital credit for the new partner is less than actual contribution.
Bonus capital for the existing partners.
L will invest P30,000 cash for a 25% interest in the net assets of the partnership.
A bonus of P10,000 will be given to the existing partners.
1. Partnership Asset and Partner’s Equity will increase because of the cash
investment.
2. Total contributed capital should be equal to total agreed or revised equity.
3. Actual investment is P30,000 but new partner will be credited only for P20000
based on the agreed equity of P80,000 x 25%.
4. A bonus capital will be given to the existing partners.
 Investing in a Partnership
Case 6. Capital credit for the new partner is less than actual contribution.
Bonus capital for the existing partners.
 Investing in a Partnership
Case 7. Capital credit for the new partner is higher than actual contribution.
Bonus capital for the new partner.
L contributed P30,000 for a 50% interest. Bonus is given to the new partner.
Analysis and computation:
1. Partnership assets will increase to P80,000 with the new contribution of
P30,000.
2. Total contributions should be equal to total agreed equity.
3. Agreed capital for new partner is P40,000 computed as follows: P80,000 x
50%.
4. New partner’s equity will increase twice: actual contribution and bonus from
the existing partners.
 Investing in a Partnership
Case 7. Capital credit for the new partner is higher than actual contribution.
Bonus capital for the new partner.
 Investing in a Partnership
Case 7. Capital credit for the new partner is higher than actual
contribution. Bonus capital for the new partner.
Entry:
Cash 30,000
A, Capital 6,000
S, Capital 4,000
L, Capital 40,000
Record the contribution of L and bonus from A and S for a ¼
equity
 Asset Revaluation or Bonus May Be Implied
Asset revaluation or bonus may be implied based on the following rules:
1. There is no asset revaluation if total agreed equity is the same as total
contributed capital, no bonus if the new partner’s capital credit is the same
as the actual contribution made.
2. If total contributed capital is not equal to total agreed equity, there is
asset revaluation. Will it be an upward or a downward adjustment?
a. The asset are undervalued requiring an upward adjustment when total
contributed capital is lesser that total agreed equity.
b. The assets are overvalued and will require downward adjustment when
total contributed capital is greater that total agreed equity.
 Asset Revaluation or Bonus May Be Implied
Asset revaluation or bonus may be implied based on the following
rules:
3. If total agreed equity is the same as total contributed capital but the
new capital credit is not the same as actual contribution, there is a bonus.
Who gets the bonus.
a. Bonus is for new partner if the capital credit for the new partner is
higher than the actual contribution given.
b. Bonus for the existing partners if the capital credit for the new
partner is lesser than the actual contribution given.
 Asset Revaluation or Bonus May Be Implied
Case 8: L will invest P15,000 cash and will be given 15% interest in
the assets and in the profits of the business.
Two views:
1. Asset revaluation.
2. Bonus to existing partners.
 Asset Revaluation or Bonus May Be Implied
Case 8: L will invest P15,000 cash and will be given 15% interest in
the assets and in the profits of the business.
First View: Asset revaluation (Upward adjustment) method.
 Asset Revaluation or Bonus May Be Implied
Case 8: L will invest P15,000 cash and will be given 15% interest in the assets and
in the profits of the business.
First View: Asset revaluation (Upward adjustment) method. Total equity is agreed
to be P100,000.
Entry:
Land 35,000
A, Capital 21,000
S, Capital 14,000
To adjust the land based on the agreed value fixed by partners.
Cash 15,000
L, Capital 15,000
L invested cash for a 15% interest over the partnership.
 Asset Revaluation or Bonus May Be Implied
Case 8: L will invest P15,000 cash and will be given 15% interest in the assets
and in the profits of the business.
Second view: Bonus method. Total agreed equity is equal to P65,000.
 Asset Revaluation or Bonus May Be Implied
Case 8: L will invest P15,000 cash and will be given 15% interest in the
assets and in the profits of the business.
Second view: Bonus method. Total agreed equity is equal to P65,000.
Entry:
Cash 15,000
L, Capital 9,750
A, Capital 3,150
S, Capital 2,100
L invested P15,000 for a 15% interest over the partnership
with a bonus to A and S
 Asset Revaluation or Bonus May Be Implied
Case 9: L will contribute cash of P15,000 for a 25% interest in the
assets and profits of the partnership.
Two views:
1. Asset impairment.
2. Bonus to new partner.
 Asset Revaluation or Bonus May Be Implied
Case 9: L will contribute cash of P15,000 for a 25% interest in the assets
and profits of the partnership.
1. Asset Impairment. Total agreed equity is P60,000
 Asset Revaluation or Bonus May Be Implied
Case 9: L will contribute cash of P15,000 for a 25% interest in the
assets and profits of the partnership.
1. Asset Impairment. Total agreed equity is P60,000
Entry:
A, Capital 3,000
B, Capital 2,000
Land 5,000

Cash 15,000
L, Capital 15,000
 Asset Revaluation or Bonus May Be Implied
Case 9: L will contribute cash of P15,000 for a 25% interest in the assets
and profits of the partnership.
2. Bonus method. Agreed capital is P65,000.
 Asset Revaluation or Bonus May Be Implied
Case 9: L will contribute cash of P15,000 for a 25% interest in the assets
and profits of the partnership.
2. Bonus method. Agreed capital is P65,000.

Entry:
Cash 15,000
A, Capital 750
S, Capital 500
L, Capital 16,250
 Asset Revaluation or Bonus May Be Implied
Case 10: L contributed P40,000 for a ¼ interest. Agreed total
partners’ equity should be P120,000.
 Asset Revaluation or Bonus May Be Implied
Case 10: L contributed P40,000 for a ¼ interest. Agreed total partners’
equity should be P120,000.
Entries:
Asset (Land) 30,000
A, Capital 18,000
S, Capital 12,000

Cash 40,000
L, Capital 30,000
A, Capital 6,000
S, Capital 4,000
 Retirement of Partner
Rules:
1. Capital balance of the retiring partner must be updated as of
retirement data to be used as a basis for settlement. To be taken
into consideration are the following: asset revaluation and profit
distribution.
2. Revaluation will affect all partners.
3. For practicality, only the capital of the retiring partner may be
updated for profit or loss share through estimation.
4. The drawing account of the retiring partner must also be closed
against the capital account.
 Retirement of Partner
Illustration: The statement of financial position of ABC partnership
owned by A, B, and C showed as at December 31, 2021 the partners’
capital balances at P400,000, P500,000, and P300,000
respectively. They share profits and losses at the agreed ratio of 5:3:2
respectively. C decided to leave the business and withdraw his
interest over the partnership on June 30, 2022. Together with his
other partners, they agreed not to close the books and estimate the
share of C based on the average estimated net income of the
partnership for the last three years which was P270,000. C made a
cash withdrawal of P15,000 just before he decided to retire.
 Retirement of Partner
Update the Capital Balance of C as follows:
C, Capital as of Jan. 1 300,000
Share in net profit for 6 months
(270,000 x 6/12 x 20%) 27,000
Cash withdrawals (15,000)
C, Capital as of June 30 312,000
 Retirement of Partner
Entries:
1. Income summary 27,000
C, Drawing 27,000
To record share of C in the net profit.

C, Drawing 12,000
C, Capital 12,000
To close the balance of the drawing.
 Retirement of Partner
Entries:
2. Updated capital of C may be recovered through any of the following
alternatives”
a. Purchase by a new partner for P350,000
C, Capital 312,000
D, Capital 312,000
b. Sell to any of the remaining partner.
C, Capital 312,000
A, Capital 312,000
c. Share is paid by the partnership
C, Capital 312,000
Cash 312,000
 Retirement of Partner
A problem will arise when the retiring partner’s interest will be
settled by the partnership at an amount greater than or less that
the book value of P312,000.
Illustration: Assume that C with an updated capital of P312,000
receive as cash settlement from the partnership:
A. P312,000 (at book value)
C, Capital 312,000
Cash 312,000
 Retirement of Partner
B. P362,000 (more that book value)
Difference may be recognized as 1. Asset revaluation 2. Bonus.
1. Asset Revaluation
362,000 – 312,000 = 50,000 x 2/10 = 250,000 (total asset revaluation)
Land 250,000
A, Capital (250,000 x 5/10) 125,000
B, Capital (250,000 x 3/10) 75,000
C, Capital (250,000 x 2/10) 50,000

C, Capital (312,000+50,000) 362,000

Cash 362,000
 Retirement of Partner
B. P362,000 (more that book value)
Difference may be recognized as
1. Asset revaluation
2. Bonus.
Bonus to C 362,000 – 312,000 = 50,000
A, Capital (50,000 x 5/8) 31,250
B, Capital (50,000 x 3/8) 18,750
C, Capital 312,000
Cash 362,000
 Retirement of Partner
C. P300,000 (less that book value)
1. Bonus to the remaining partner.
(312,000-300,000 = 12,000)
C, Capital 312,000
Cash 300,000
A, Capital (12,000 x 5/8) 7,500
B, Capital (12,000 x 3/8) 4,500
 Retirement of Partner
C. P300,000 (less that book value)
2. Asset Impairment
312,000-300,000 = 12,000 / 2/10 = 60,000
A, Capital (60,000 x 5/10) 30,000
B, Capital (60,000 x 3/10) 18,000
C, Capital (60,000 x 2/10) 12,000
Land 60,000

C, Capital 300,000
Cash 300,000
 Death or Incapacity of a Partner
• Dissolves the original association but the business may still
continue with a substitute taking his place, as provided in the
articles of co-partnership.
• Business can be continue by the remaining partners.
• Deceased partner’s share may be paid out of the partnership
funds.
 Death or Incapacity of a Partner
• If it will take some time for the partnership to make a cash settlement
the following rules should be observe:
1. Close the capital and drawing account to a liability account – Payable
to Partner’s Estate.
2. Compute for he partner’s share in the profit until date of date and
credit to increase Payable to Partner’s Estate.
3. From date of death to date of settlement, accrue interest on the total
liability computed in nos. 1 and 2 above.
4. At the date of settlement, pay the liability which is now the sum of nos.
1, 2, and 3 above.
 Death or Incapacity of a Partner
Illustration:
On January 1, 2021, the capital accounts of the partners who are sharing
profits equally were as follows: A, P200,000; C, P300,00 and V,
P150,000. On October 1, that was nine months after, Partner C died. The
partnership agreement provides for settlement upon retirement or death
of a partner after six months from date partner reties or dies. An 18%
interest shall be included and computed from date of death to date of
settlement. Net income for the year amounted to P90,000. records show
that C made a cash withdrawal during the year resulting to a debit
balance of P50,000 in her drawing account.
 Death or Incapacity of a Partner
Entries:
2021
Oct. 1 C, Capital 300,000
C, Drawing 50,000
Payable to C’s Estate 250,000
To close C’s equity to a liability account.

Dec. 31 Income and Expense Summary 22,500

Payable to C’s Estate 22,500
To record profit share of C for 9 months (90,000 x 9/12 x 1/3)
 Death or Incapacity of a Partner
Entries:
2021
Dec. 31 Income and Expense Summary 12,262.50
Payable to C’s Estate (272,500 x 18% x 3/12) 12,262.50
To accrue 18% interest from Oct. 1 to Dec. 31

Income and Expense Summary 55,237.50

A, Drawing 27,618.75
V, Drawing 27,618.75
To record the profit share A and V.
 Death or Incapacity of a Partner
Entries:
2021
Dec. 31 Income and Expense Summary 12,262.50
Payable to C’s Estate (272,500 x 18% x 3/12) 12,262.50
To accrue 18% interest from Oct. 1 to Dec. 31

Income and Expense Summary 55,237.50

A, Drawing 27,618.75
V, Drawing 27,618.75
To record the profit share A and V by using the remaining partners’ profit
ratio of 5:3 (90,000-22,500-12,262.50 = 55,237.50)
 Death or Incapacity of a Partner
Payable to C Estate will now be P284,762.50 computed as follows:
Oct. 1 P250,000.00
Dec. 31 Profit Share 22,500.00
Accrued Interest 12,262.50
P284,762.50

On date settlement, the entry will be:

2022
April 1 Interest Expense 12,262.50
Payable to C Estate 284,762.50
Cash 297,025
To record payment of liability plus accrued interest
of 18% x 3/12 x 272,500.
 Incorporation of a Partnership
• It a partnership needs more funds for growth and expansion of
its business it may file for incorporation by using the partnership
assets as its starting capital.
• The books of the partnership will have to be adjusted and closed
and a statement of financial position prepared as a basis for the
incorporation.
 Incorporation of a Partnership
Illustration: Assume that A, B, and C are partners dividing profit and loss in the
ratio of 3:2:1, respectively. They decide to incorporate the business on July 1 and call
it the Internet Corporation. With three more friends who were invited to join them,
additional cash of P1,000,000 will be invested in exchange for some shares of
stock. The partnership’s financial position appears as follows:
 Incorporation of a Partnership
Illustration:
The Internet Corporation filed its incorporation papers, and among the
provision was authorized to issue ordinary shares of 100,000 with a part
value of P50 per share. The partners will receive common shares equal to
their net assets after adjusting the following: 5% provision for doubtful
accounts, 10% write down on inventories, furniture and equipment to be
revalued based on its current fair value of P350,000.
 Incorporation of a Partnership
Entries:
a) Appropriation Account 25,000
Allowance for Bad Debts 25,000
To adjust allowance for bad debts at 5% of P500,000

b) Appropriation Account 75,000

Inventories 75,000
To write down inventories to 90% of its cost.

c) Appropriation Account 50,000

Accumulated Depreciation 50,000
To adjust the value of furniture and equipment to
fair value. (400,000-350,000)
 Incorporation of a Partnership
Entries:
d) A, Capital (150,000 x 3/6) 75,000
B, Capital (150,000 x 2/6) 50,000
C, Capital (150,000 x 1/6) 25,000
Appropriation Account 150,000
To close the balance of the appropriation account.
 Incorporation of a Partnership
Entries:
e) Share of Internet Corp. 1,550,000
Accounts Payable 100,000
Notes Payable 200,000
Allo. for Bad Debts 25,000
Accumulated Depreciation 450,000
Cash 350,000
Accounts Receivable 500,000
Inventories 675,000
Furniture and Equipment 800,000
To record the receipt of shares and transfer of the net assets
to the corporation.
Note that the assets are closed at the adjusted values. Value of the shares are equal to the net assets contribution.
 Incorporation of a Partnership
Entries:
f) A, Capital (700,000-75,000) 625,000
B, Capital (500,000-50,000) 450,000
C, Capital (500,000-25,000) 475,000
Shares of Internet Corp. 1,550,000
To record distribution of stock certificates to partners and
close the partners’ equity.
 Incorporation of a Partnership
Entries in the books of the corporation:
a. Record authorization using a memorandum entry:
Authorized to issue 100,000 ordinary shares at P50 par value.
b. Cash 350,000
Accounts Receivable 500,000
Inventories 675,000
Furniture and Equipment 800,000
Accounts Payable 100,000
Notes Payable 200,000
Allo. for Bad Debts 25,000
Accumulated Depreciation 450,000
Share Capital 1,550,000
To record issuance of 31,000 ordinary shares.
 Incorporation of a Partnership
Entries in the books of the corporation:
c. Cash 1,000,000
Share Capital 1,000,000
To record issuance of 20,000 ordinary shares for cash
received from other shareholders.
Thank you