Question

Hunter, Folgers, and Tulip have been partners while sharing net income and loss in a 5:3:2 ratio (in percents: Hunter, 50%; Folgers, 30%; and Tulip, 20%).
On January 31, the date Tulip retires from the partnership, the equities of the partners are Hunter, $150,000; Folgers, $90,000; and Tulip, $60,000.
Prepare journal entries to record the retirement of Tulip under the independent assumption.
Assume Tulip is paid; (a) $60,000, (b) $80,000,and (c) $30,000 for her equity using partnership cash. (Do not round intermediate calculations.)

Answer 1

Answer:

a Debit  Capital $60,000  

Credit  Tulip's Bank Account $60,000  

   

b    

Debit  Capital $60,000  

Debit  P&L $20,000  

Credit  Tulip's Bank Account $80,000  

c    

Debit  Capital $60,000  

Credit  P&L $30,000  

Credit  Tulip's Bank Account $30,000  

Explanation:

Depending on partnership agreement of the partners,one way to treat Tulip's exit from the business is what i described,it could be treated that whatever shortfall in capital paid to Tulip or the excess paid is shared among the remaining partners in their agreed profit sharing ratio