1. **Problem Statement:** We need to record the formation of AB Partnership with contributions from Mr. A and Mr. B, and then journalize and adjust the transactions for the first month of operation. 2. **Formation of Partnership - Steps:** - Identify and agree on the assets and liabilities contributed by Mr. A. - Determine the net investment of Mr. A by adjusting book values to market values and subtracting liabilities. - Mr. B invests cash equal to Mr. A's net investment. - Record the contributions in the partnership books. - Prepare a financial statement (Balance Sheet) to show the partnership's financial position after formation. 3. **Calculating Mr. A's Net Investment:** - Land market value: $1,350,000$ - Inventory market value: $510,000$ - Cash: $280,000$ - Total assets contributed: $$1,350,000 + 510,000 + 280,000 = 2,140,000$$ - Less: Note payable assumed by partnership: $350,000$ - Net investment of Mr. A: $$2,140,000 - 350,000 = 1,790,000$$ 4. **Mr. B's Investment:** - Mr. B invests cash equal to Mr. A's net investment: $1,790,000$ 5. **Recording Investments in Partnership Books on January 1, 2025:** - Debit assets: Land $1,350,000$, Inventory $510,000$, Cash $280,000$ - Debit Cash $1,790,000$ from Mr. B - Credit Note Payable $350,000$ - Credit Capital A $1,790,000$ - Credit Capital B $1,790,000$ 6. **Financial Statement after Formation:** - Prepare a Balance Sheet showing assets, liabilities, and partners' equity. - This is necessary to establish the financial position of the partnership at the start. 7. **Journalizing Transactions for the First Month:** (Only first transaction shown here as example) - Bought goods on account P600,000: Debit Inventory 600,000 Credit Accounts Payable 600,000 8. **Adjusting Entries and Financial Statements:** - Adjust supplies for ending balance: Debit Supplies Expense, Credit Supplies - Record depreciation for furniture, equipment, building - Prepare adjusted trial balance - Close revenue and expense accounts to capital accounts - Prepare post-closing trial balance - Prepare Income Statement, Statement of Changes in Equity, and Balance Sheet **Final answer:** Mr. A's net investment is $1,790,000$, Mr. B invests the same amount in cash, and the partnership records assets and liabilities at market values. The partnership's financial position is established by preparing a balance sheet after formation. Transactions for the first month are journalized and adjusted to prepare accurate financial statements.