Question

Withdrawal of PartnerLane Stevens is to retire from the partnership of Stevens 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: Lane Stevens, $150,000; Cherrie Ford, $70,000; and LaMarcus Rollins, $60,000. 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 $22,300 and the allowance for doubtful accounts should be increased by $1,300. Stevens agrees to accept a note for $100,000 in partial settlement of his ownership equity. The remainder of his claim is to be paid in cash. Ford and Rollins are to share equally in the net income or net loss of the new partnership.
a. Journalize the entry to record the adjustment of the assets to bring them into agreement with current market prices. For a compound transaction, if an amount box does not require an entry, leave it blank.b. Journalize the entry to record the withdrawal of Stevens from the partnership. For a compound transaction, if an amount box does not require an entry, leave it blank.

Answer 1

Answer:

Explanation:

The journal entries are presented below:

a. Merchandise Inventory      $22,300  

     To  Allowance for Doubtful Accounts A/c $1,300

     To  Lane Stevens, Capital A/c $9,000

     To  Cherrie Ford, Capital A/c $6,000

     To  LaMarcus Rollins, Capital A/c $6,000

(Being the revaluation of assets is recorded)

The computation is  shown below:

= $22,300 - $1,300

= $21,000

And 21,000 is distributed in 3:2:2 ratio

b. Lane Stevens, Capital A/c Dr $159,000

          To Notes Receivable A/c $100,000

          To Cash A/c $59,000

(Being the withdrawn amount is recorded)

The lane Stevens capital would be

= $150,000 + $9,000

= $59,000