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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Withdrawal of partner

Lane Stevens is to retire from the partnership of Stevens and Associates as of March 31, the end of the current fiscal year. After closing the accounts, the capital balances of the partners are as follows: Lane Stevens, $150,000; Cherrie Ford, $70,000: and LaMarcus Rollins, $60,000. They have shared net income and net losses in the ratio of 3:2:2. The partners agree that the merchandise inventory should be increased by $22,300 and the allowance for doubtful accounts should be increased by $1,300. Stevens agrees to accept a note for $100,000 in partial settlement of his ownership equity. The remainder of his claim is to be paid in cash. Ford and Rollins are to share equally in the net income or net loss of the new partnership.

Journalize the entries to record (a) the adjustment of the assets to bring them into agreement with current market prices and (b) tile withdrawal of Stevens from the partnership.

(a)

To determine

Partnership

It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.

To record:  The journal entry for the asset revaluation.

Explanation

Working Note:

Calculation of share of partners in the revaluation profit

Revaluation Profit = $21,000

Profit and loss sharing ratio of L: C: LM = 3:2:2

Share of L in the revaluation profit:

ShareofL=($21,000×37)=$9,000 (1)

ShareofC

(b)

To determine

To provide: The journal entry of withdrawal of partner L from the partnership.

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