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The partnership of Arun, Margot, and Tammy has been doing well. Arun wants to retire and move to another state for a once-in-a-lifetime opportunity. The partners’ capital balances prior to Arun’s retirement are $60,000 each. Prepare a schedule showing how Arun’s withdrawal should be divided assuming his buyout is: A. $70,000 B. $45,000 C. $60,000. In addition, show the resulting entries to the capital accounts of each of the three.

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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 2PB
Textbook Problem
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The partnership of Arun, Margot, and Tammy has been doing well. Arun wants to retire and move to another state for a once-in-a-lifetime opportunity. The partners’ capital balances prior to Arun’s retirement are $60,000 each. Prepare a schedule showing how Arun’s withdrawal should be divided assuming his buyout is:

A. $70,000

B. $45,000

C. $60,000.

In addition, show the resulting entries to the capital accounts of each of the three.

To determine

Introduction:

Withdraw of a partnership leads to dissolving the partnership and a new partnership needs to be formed among the left partners. A new agreement must be made between the left partners.

To prepare:

Journal entries and schedules.

Explanation of Solution

Investment of the new partner is not given in the question, so applying hit & trial method to show the bonus to the partners considering option B: $45,000

Schedule

Particulars Amounts
Total capital (3*$60000) Less: Withdraw A’s capital (Buyout) Total capital of new partnership Arun’s capital debit(1/3 of $1,35,000) Total Bonus to T&M $1,80,000 ($45,000) $1,35,000 $45,000 $15,000

Journal Entries

S...

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Chapter 15 Solutions

Principles of Accounting Volume 1
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