Assume the partnership of Dean, Hardin, and Roth has been in existence for a num

Question

Assume the partnership of Dean, Hardin, and Roth has been in existence for a number of years. Dean decides to withdraw from the partnership when the                         partners' capital balances are as follows:
                        
                        Partner Capital Balance Profit and Loss Ratio
                        Dean 60,000 40%
                        Hardin 15,000 30%
                        Roth 25,000 20%
                        
                        An appraisal of the business and its property estimates the fair value to be $100,000. Dean has agreed to receive $64,000 in exchange for his partnership                         interest.
                        
                        What are the remaining partners' capital balances after Dean's interest is dissolved, assuming the bonus method is applied?

Please explain

Explanation / Answer

Solution:

Dean's capital balance = $60,000

Amount received in exchange of partnership interest to Dean = $64,000

Bonus amount received to Dean = $64,000 - $60,000 = $4,000

Bonus amount will be distributed by hardin and roth in ratio of 3:2

Hardin capital balance after Dean's interest is disolved = $15,000 - $2,400 = $12,600

Roth capital balance after Dean's interest is dissovled = $25,000 - $1,600 = $23,400

Adjusting Journal Entry Particulars Debit Credit Dean's Capital Dr $60,000.00 Hardin's Capital Dr $2,400.00 Roth's Capital Dr $1,600.00        To Cash $64,000.00 (To record payment to dean from partnership retirement)

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