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PRACTICAL ACCOUNTING 2
1.
Katy Perry developed an interesting idea for marketing sailboats in Death Valley. She interested Lady Gaga in joining her in a partnership. Following the information you have collected relative to their original contribution.
Lady Gaga contributed P 30,000 cash, a track of land, and delivery equipment. Katy Perry contributed P 60,000 cash. After giving special consideration to the tax bases of the assets contributed, the relative usefulness of the assets to the partnership versus the problems of finding buyers for the assets and contributing cash, and other such factors, the partners agreed that Katy Perry’s contribution was equal to 40 percent of the partnership’s tangible assets, measured in terms of the fair value of the assets to the partnership. However, since marketing idea originated with Katy Perry, it was agreed that she should receive credit for 50 percent of the recorded capital.
Recent sales of land similar to that contributed by Lady Gaga suggest a market value of P 40,000. Likewise, recent sales of delivery equipment similar to that contributed by Lady Gaga suggest P 40,000 as the market value of the equipment. These sales, of course, were not entirely representative of the particular assets contributed by Lady
Gaga and therefore may be a better indicator of their relative values than their absolute values. In reflecting on their venture, the partners agree that it is a rather risky affair in respect to anticipated profits. Hopefully, however, they will be able to build good customer relations over the long run and establish a permanent business with an attractive long-run rate of return.
Under the most appropriate method, given the circumstances, the entry to record the formation of the partnership must be:
a.
Cash
P 90,000
c.
Cash
P 90,000
Delivery equipment
40,000
Delivery equipment
40,000
Land

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