Meir, Benson and Lau are partners and share income and loss in a 3:2:5 ratio. The partnership's capital balances are as follows: Meir, $168,000; Benson, $138,000; and Lau, $294,000. Benson decides to wothdraw from the partnership, and the partners agree not to have the assets revalued upon Benson's retirement. Prepare journal entries to record Benson's February 1 withdrawal from the partnership under the following separate assumptions.

(a) Benson sells her interest to North for $160,000 after North is approved as a partner;

(b) Benson gives her interest to a son-in-law, Schmidt, and Schmidt is approved as a partner;

(c) Benson is paid $138,000 in partnership cash for her equity;

(d) Benson is paid $214,000 in partnership cash for her equity; and

(e) Benson is paid $30,000 in partnership cash plus equipment recorded on the parnership books at $70,000 less its accumulated depreciation of $23,000.

Question

Business

Shirley Vargas

10 March, 19:13

Meir, Benson and Lau are partners and share income and loss in a 3:2:5 ratio. The partnership's capital balances are as follows: Meir, $168,000; Benson, $138,000; and Lau, $294,000. Benson decides to wothdraw from the partnership, and the partners agree not to have the assets revalued upon Benson's retirement. Prepare journal entries to record Benson's February 1 withdrawal from the partnership under the following separate assumptions.

(a) Benson sells her interest to North for $160,000 after North is approved as a partner;

(b) Benson gives her interest to a son-in-law, Schmidt, and Schmidt is approved as a partner;

(c) Benson is paid $138,000 in partnership cash for her equity;

(d) Benson is paid $214,000 in partnership cash for her equity; and

(e) Benson is paid $30,000 in partnership cash plus equipment recorded on the parnership books at $70,000 less its accumulated depreciation of $23,000.

+5

Answers (1)

Know the Answer?

Kennedy Simpson · Answer 1

Journal Entry

a) Debit Capital - Benson $138,000 Credit Capital-North $138,000

b) Debit Capital - Benson $138,000 Credit Capital-Schmidt $138,000

c) Debit Capital-Benson $138,000 Credit Bank $138,000

d) Debit Capital-Benson $138,000 Debit Capital-Meir $28,500 Debit Capital-Lau $47,500 Credit Bank $214,000

e) Debit Capital-Benson $138,000 Debit Accumulated Depreciation $23,000 Credit Cash $30,000 Credit Equipment $70,000 Credit Capital-Meir $22,875 Credit Capital-Lau $38,125

Explanation:

a and b are the same with the same amount of capital transferred from one partner to another partner, it is just a matter of derecognizing Benson and recognize North or Schmidt.

c) Partner Benson is paid cash her capital,

d) decrease in meir's Capital = 214,000-138,000 = 76,000*3/8 = $28,500

Decrease in Lau's Capital Account = $76,000 5/8 = 47,500

Excess funds are taken from capitals or income summary account of the partnership which will affect the capitals of the remaining partners

e) Meir's Capital = $138,000 - (70,000-23,000+30,000)

= $138,000-77,000

= $61,000*3/8 = $22,875

Lau = $61,000*5/8 = 38,125

The Capital Accounts of the remaining partners will increase because of the gain made on buying out the leaving partner.