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Problem 04. Incorporation of the Partnership Assume that AA and BB, partners of AB Partnership (who share net income and loss in 80%:20%) organize A & B Corporation to take over the net assets of the partnership. The balance sheet of the partnership on June 31, 20x4, the date of incorporation, is as follows: AB Partnership Balance Sheet June 30, Cash P 14,400 Trade accounts receivable P 33,720 Less: Allowance for doubtful accounts 720 33,000 Inventories, first in, first out cost 30,600 Equipment at cost P 72,000 Less: Accumulated depreciation of equipment 31, 200 40,800 Total assets P 116.800 Liabilities and Bartner's Capital Ligbilities: Trade accounts payable P 42,000 Partner's capital: AM, cupitel P 57,586 86, capitol 19.212 75,800 Total liabilities and partner's capital After an appraisal of the equipment and an audit of the partnership's financial statements, the partners agree that the following adjustments are required to restate the net assets of the partnership to current fair value: Increase the allowance for doubtful accounts to P1,200. Increase the inventories to current replacement cost of P36,000. Increase the equipment to its reproduction cost new, P84,000, less accumulated depreciation on this basis, P36,600; that is, to current fair value, P 47,400. Recognize accrued liabilities of P1,320. Recognize goodwill of P12,000. A & B Corporation is authorized to issue 12,000 shares of P10 par common stock. It issues 9,000 shares of common stock valued at P11 a share to the partnership in exchange for the net assets of the partnership. Required: Prepare the required entries to incorporate a new corporation assuming: 1. Partnership books are retained 2. New books are opened for the A & B Corporation