Nick Rawls is to retire from the partnership of Rawls and Associates as of March
ID: 2449895 • Letter: N
Question
Nick Rawls is to retire from the partnership of Rawls 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: Nick Rawls, $265,000; Sarah Fitzpatrick, $130,000; and Antoine Faber, $165,000. 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 $24,000, and the allowance for doubtful accounts should be increased by $3,000. Rawls agrees to accept a note for $170,000 in partial settlement of his ownership equity. The remainder of his claim is to be paid in cash. Fitzpatrick and Faber are to share equally in the net income or net loss of the new partnership.
Explanation / Answer
Accounting for the changes in inventry & doubtful debts
= 21000 profit
Profit share to partners in 3:2:2
Partner Existing Capital Additional Profit Adjested Capital
Nick Rawls 265000 9000 (21000*3/7) 274000
Sarah Fitzpatrick 130000 6000 ( 21000*2/7) 136000
Antoine Faber 165000 6000 ( 21000*2/7) 171000
For settelment to Nick
Nick Rawls Capital account .........Dr 274000
To Cash account 104000
To Note account ( Credit note) 170000
Note
After Nick leaving the firm , now Fitzpatrick and Faber are to share profits and loss in equal shares , so if they are to have same capital , then follow as below
partner adjusted capital equal capital remarks
Fitzpatrick 136000 153500 Deficit amount of $ 17500 must be bought in
Faber 171000 153500 Excess amount of $ 17500 must be payed
Total 307000 307000
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