Question

Retirement paid from partnership assets.

Dale Nagel, Keith White, and Todd Rundgren have capital balances of $95,000, $75,000, and $60,000 respectively.  They share income or loss on a 5:3:2 basis.  Journalize White’s withdrawal/retirement from the partnership under each of the following conditions:

1. White is paid $82,000 in cash from partnership assets, and a bonus is granted to the retiring partner.

2. White is paid $68,000 in cash from partnership assets, and bonuses are granted to the remaining partners.

2) Retirement paid by personal assets. (cash was paid by one of the remaining partners, i.e. partnership did not pay the retiring partner…no cash)

Mary Toshiba, Vera Miles, and Debra Noll have capital balances of $50,000, $30,000, and $22,000, respectively, and their income ratios are 5:3:2.  Journalize Noll’s withdrawal/retirement from the partnership under each of the following independent conditions:

1. Toshiba and Miles agree to purchase Noll’s equity by paying $15,000 each from their personal assets.  Each purchaser receives 50% of Noll’s equity.

2. Miles agrees to purchase all of Noll’s equity by paying $22,000 cash from her personal assets.

3. Toshiba agrees to purchase all of Noll’s equity by paying $26,000 cash from her personal assets.

Answer 1

1a.
Account Title and Explanations	Debit	Credit
Partner's Capital - Keith White	$75,000
Partner's Capital - Dale Nagel	$5,000
Partner's Capital - Todd Rundgren	$2,000
Cash		$82,000
Note
The amount paid to the retiring partner in excess of his
capital in the partnership is termed as bonus paid to the
retiring partner. This bonus payment is shared by the
retiring partners in the proportion of their profit sharing
ratio after the retirement of the retiring partner
Computation of Bonus paid to Keith White
Cash paid to Keith White on retirement	$82,000
Capital account balance of Keith White	$75,000
Bonus paid to Keith White	$7,000
Profit sharing ratio of Dale and Todd after retirement = 5:2
Share of Bonus paid by Dale = $ 7,000 * 5/7 = $ 5,000
Share of Bonus paid by Dale = $ 7,000 * 2/7 = $ 2,000
1b.
Account Title and Explanations	Debit	Credit
Partner's Capital - Keith White	$75,000
Partner's Capital - Dale Nagel		$5,000
Partner's Capital - Todd Rundgren		$2,000
Cash		$68,000
Note
Computation of Bonus paid by Keith White
Capital account balance of Keith White	$75,000
Cash paid to Keith White on retirement	$68,000
Bonus paid by Keith White	$7,000
Profit sharing ratio of Dale and Todd after retirement = 5:2
Share of Bonus received by Dale = $ 7,000 * 5/7 = $ 5,000
Share of Bonus received by Dale = $ 7,000 * 2/7 = $ 2,000
2.
Note
When the retiring partner is paid from personel assets of
the remaining partner, only amount limited to the partner's
capital is accounted for.Any amount paid in excess of the
balance in the capital account of retiring partner is a
personal expense of the remaining partner(s) and does not
affect the partnership accounts
a.
Account Title and Explanations	Debit	Credit
Partner's Capital - Debra Noll	$22,000
Partner's Capital - Mary Toshiba		$11,000
Partner's Capital - Vera Miles		$11,000
Note
$ 4,000 each paid by Mary and Vera ( $ 15,000 - $ 11,000)
is the personal expense of the respective partners and has
no effect on the partnership accounts.
b.
Account Title and Explanations	Debit	Credit
Partner's Capital - Debra Noll	$22,000
Partner's Capital - Vera Miles		$22,000
c.
Account Title and Explanations	Debit	Credit
Partner's Capital - Debra Noll	$22,000
Partner's Capital - Mary Toshiba		$22,000
Note
$ 4,000 each paid by Mary ( $ 26,000 - $ 22,000) is the
personal expense of Mary Toshiba and has no effect on
the partnership accounts