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The partnership of Michelle, Amal, and Maureen has done well. The three partners have shared profits and losses in a 1:3 ratio, with capital balances of $60,000 each. Maureen wants to retire and withdraw. Prepare a schedule showing how the cost should be divided if Amal and Michelle decide to pay Maureen $70,000 for retirement of her capital account and the new agreement will share profits and losses 50:50.

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 15, Problem 1EB
Textbook Problem
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The partnership of Michelle, Amal, and Maureen has done well. The three partners have shared profits and losses in a 1:3 ratio, with capital balances of $60,000 each. Maureen wants to retire and withdraw. Prepare a schedule showing how the cost should be divided if Amal and Michelle decide to pay Maureen $70,000 for retirement of her capital account and the new agreement will share profits and losses 50:50.

To determine

Introduction:

Partnership refers to a form of business ownership where two or more than two persons join to run a business. They share capital, liability and profit & losses of business.

To prepare:

A schedule showing the division of cost among old partners for the payment to retiring partner.

Explanation of Solution

Given information:

Capital of partners is $60,000 each.

Partners ratio is 50:50

Payment to retiring partner: $70,000

Calculation of bonus amount to retiring partner will be as follows:

Particulars Amount ($)
Cash payment to retiring partner 70,000
Capital of retiring partner 60,000
Amount of bonus 10,000

Cost of bonus will be allocated to old partners in 50:50 ratio as:

CosttoMi=($10,000×50100)=$5,000

Cost

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Chapter 15 Solutions

Principles of Accounting Volume 1
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