E 16-14 Partnership retirement—Revaluation and bonus approachesThe capital account balances and profit- and loss-sharing ratios of the Byd, Box, Dar, and Fus partnership on December 31, 2016, after closing entries are as follows:Byd (30%)$30,000Box (20%)25,000Dar (40%)25,000Fus (10%) 20,000 Total capital$100,000Box is retiring from the partnership, and the partners agree that he will receive a cash payment of $35,000 in final settlement of his interest. The book values of partnership assets and liabilities are equal to fair values, except for a building with a book value of $15,000 and a fair value of $25,000.RequiredPrepare the journal entry or entries to record Box’s retirement assuming that assets are revalued to the basis implied by the excess payment to Box.Prepare the journal entry or entries to record Box’s retirement assuming the bonus approach is used.

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Asked Sep 2, 2019
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E 16-14 Partnership retirement—Revaluation and bonus approaches

The capital account balances and profit- and loss-sharing ratios of the Byd, Box, Dar, and Fus partnership on December 31, 2016, after closing entries are as follows:

Byd (30%)

$30,000

Box (20%)

25,000

Dar (40%)

25,000

Fus (10%)

 20,000

 Total capital

$100,000

Box is retiring from the partnership, and the partners agree that he will receive a cash payment of $35,000 in final settlement of his interest. The book values of partnership assets and liabilities are equal to fair values, except for a building with a book value of $15,000 and a fair value of $25,000.

Required

  1. Prepare the journal entry or entries to record Box’s retirement assuming that assets are revalued to the basis implied by the excess payment to Box.

  2. Prepare the journal entry or entries to record Box’s retirement assuming the bonus approach is used.

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Expert Answer

Step 1

A partner withdrawing his share from a partnership is known as retirement. The partner who withdraw his share is known as a retiring or going partner. The old partners continue to do the business.

Step 2

Working notes:

Calculation of goodwill:

Excess payment to Bo= Cash paid – Bo’s Capital

                                    = $35,000 - $25,000

                                    = $10,000

 Excess payment on Bo re...

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suggested by excess payment to B0 1. Jounal entry for valuation of asset and liabilities as Date Accounts title and explanation Debit Credit $ Building $10,000 $40,000 1 Goodwill Byis Capital (50,000x0.3) Bo's Capital (50,000x0.2) D's Capital (50,000x0.4) F's Capital (50,000x0.1) (To record revaluation of building and goodwill) $15,000 $10,000 S20,000 $5,000 Bo's capital $35,000 2. Cash $35,000 (To record cash payment to Bo on his retirement)

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Final Accounts for Partnership

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