10 Carney Katherine and Ross each have a capital balance of

10. Carney, Katherine, and Ross each have a capital balance of $100,000. Katherine is retiring from the partnership. The profit-and-loss sharing ratio is 1:2:1. Journalize the payment of $130,000 to Katherine upon retirement. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Accounts and Explanation Debit Credit Carney, Capital Katherine, Capital Ross, Capital Cash To record withdrawal of Katherine from the partnership.

Solution

Answer:

Carney, Capital Dr 15,000

Katherine, Capital Dr 100,000

Ross, Capital Dr 15,000

To Cash account 130,000

(To record Withdrawal of Katherine from the partnership)

The amounts are calculated as follows:

Amount paid to Katherine 130,000

Less: Katherine\'s capital 100,000

Bonus 30,000

The above bonus is debited to existing parters\' capital accounts in their profit sharing ratio, in this case it is Carney and Ross who share profits equally in the ratio of 1:1, hence bonus to katherine is divided equally between the two.