Problem I
QUEENIE invites MAX to join her in her business. MAX agreed to join QUEENIE provided that the following adjustments are taken up in the books of QUEENIE:
1) Prepaid expenses of P20,000 and accrued expenses of P15,000 are to be recognized.
2) The fair value of QUEENIE's equipment is P20,000 higher than its carrying value.
3) The merchandise inventory is to be reduced by P16,000.
4) QUEENIE's capital before adjustment for the above items was P450,000. MAX will invest enough cash to make his interest equal to 40%.
• How much is QUEENIE's adjusted capital balance?
• How much should MAX invest to give her a 40% equity in the firm?
Problem II
On October 1, 2021, ARIS admits CHARISE for an interest in his business. On this date, ARIS's capital account shows a balance of P180,000, subject to the following adjustments:
1) Prepaid expenses of P21,000 and accrued expenses of P14,500 are to be recognized.
2) 5% of the outstanding accounts receivable of ARIS amounting to P90,000 is to be recognized as uncollectible.
3) CHARISE is to be credited with a one-third interest in the partnership and is to invest cash in addition to the P36,000 worth of merchandise inventory.
• How much cash should ARIS invest?
• What is the total capital of the partnership immediately after its formation?