Answered Essay: B. Higgins, J. Mayo, and N. Rice have capital balances of $83,500, $74,000, and $62,000, respectively.

B. Higgins, J. Mayo, and N. Rice have capital balances of $83,500, $74,000, and $62,000, respectively. They share income or loss on a 5:3:2 basis. Rice withdraws from the partnership under each of the following conditions.

1. Rice is paid $67,280 in cash from partnership assets, and a bonus is granted to the retiring partner.
2. Rice is paid $55,600 in cash from partnership assets, and bonuses are granted to the remaining partners.

Journalize the withdrawal of Rice under each of the assumptions above.

Expert Answer

 

1.here bonus is granted to the retiring partner, which means the amount in excess of the capital of N.Rice will be charged to the capital accounts of B.Higgins and J.Mayo in their capital ratio.

=>$67,280 – $62,000 =>$5,280 will be charged to capital accounts of B.Higgins and J.mayo in the ratio of 5:3.

the following is the journal entry:

1 N.Rice capital a/c $62,000
B.Higgings capital a/c ($5,280*5/8) $3,300
J>Mayo capital a/c ($5,280*3/8) $1,980
…………..To Cash a/c $67,280

2.Difference between cash paid and capital amount of N.Rice is divided among B.Higgins and J.Mayo account in 5:3 ratio.

=>$62,000-$55,600 =>$6,400 will be divided among Higgins and Mayo in 5:3 ratio.

2 N.Rice capital a/c $62,000
………..To Cash a/c $55,600
………..To B.Higgins capital a/c (6,400*5/8) $4,000
………..To J.Mayo capital a/c (6,400*3/8) $2,400
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