Question

On November 30, capital balances are Roses $299000, Ellis $258000 and Gise $258000. The income ratios are 20%, 20% and 60%, respectively. Roses decides to retire from the partnership. The partnership pays Roses $342000 cash for her partnership interest. After Rose’s retirement, what is the balance of Ellis’s capital account?

Answer 1

Answer:

$118,250

Explanation:

Provided Capital Balances

Roses $299,000

Ellis $258,000

Gise $258,000

Total Capital = $815,000

Cash paid to Roses on Retirement = $342,000

Balance of capital = $815,000 - $342,000 = $473,000

Ratio of sharing between Ellis and Gise will be

Rose's share = 20% will be divided in 20:60 i.e. 1:3

Ellis = 20 $\times$ 1/4 = 5

Therefore, Ellis Share = 20 + 5 = 25%

Gise = 60 + 20 - 5 = 75%

Balance of capital = $473,000

Share of Ellis = 25% of $473,000 = $118,250