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30 July, 08:33

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.

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  1. 30 July, 09:24
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    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.
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