Question

On May 1, Ada and Rey formed a partnership by pooling their assets, with the firm to take over their business assets and liabilities. The partners' capitals are to be based on the net assets transferred after the following adjustments: a) the inventory of Rey is to be increased by P4,000; b) an allowance for bad debts of P1,000 for Ada and P1,500 for Rey are to be set up; and c) accounts payable of P4,000 is to be recognized by Ada. Before adjustments, Ada has assets of P75,000 and liabilities of P5,000, while Rey has assets of P113,000 and liabilities of P34,500.The capital balances of Ada and Rey, respectively, after the agreed adjustments are:

a. P68,750 and P77,250
b. P65,000 and P81,000
c. P65,000 and P76,000
d. P75,000 and P81,000

Answer 1

After adjusting for inventory increases, bad debts allowances, and additional accounts payable, Ada's capital balance is P61,000, and Rey's capital balance is P81,000.

Step-by-step explanation:

To calculate the capital balances of Ada and Rey after the agreed adjustments, we need to make the following amendments to their assets and liabilities:

• Increasing Rey's inventory by P4,000.
• Setting up an allowance for bad debts: P1,000 for Ada and P1,500 for Rey.
• Recognizing additional accounts payable of P4,000 for Ada.

This results in the following calculations:

• Ada's adjusted assets: P75,000 (assets) - P4,000 (additional accounts payable) = P71,000
• Ada's adjusted liabilities: P5,000 + P4,000 = P9,000
• Ada's capital balance: P71,000 (adjusted assets) - P9,000 (adjusted liabilities) - P1,000 (bad debts allowance) = P61,000
• Rey's adjusted assets: P113,000 (assets) + P4,000 (inventory increase) = P117,000
• Rey's adjusted liabilities: P34,500/li>
  
• Rey's capital balance: P117,000 (adjusted assets) - P34,500 (liabilities) - P1,500 (bad debts allowance) = P81,000

Therefore, the capital balances of Ada and Rey, respectively, after the agreed adjustments are P61,000 and P81,000.