Question

In the RST partnership, Ron's capital is $80,000, Stella's is $75,000, and Tiffany's is $50,000. They share income in a 3:2:1 ratio, respectively. Tiffany is retiring from the partnership. Each of the following questions is independent of the others.
Refer to the above information. Tiffany is paid $60,000, and no goodwill is recorded. What is the Ron's capital balance after Tiffany withdraws from the partnership?
A. $74,000
B. $71,000
C. $75,000
D. $86,000

Answer 1

Answer:

A. $74,000

Explanation:

Since in this question, Tiffany is retired so we have to find the new ratio which is shown below:

As Tiffany take the shares of both the partners in 3: 2

So, the new ratio would be

Ron share = (3 ÷ 5) × (1 ÷ 6) = 3 ÷ 30

Stella share = (2 ÷ 5) × (1 ÷ 6) = 2 ÷ 30

So the ratio would be 3: 2

The 1 ÷ 6 is the Tiffany ratio

Now the balance after Tiffany withdraws from the partnership equals to

= Paid amount by Tiffany - Tiffany capital  

= $60,000 - $50,000

= $10,000

Ron's given amount = ($10,000 × 3 ÷ 5) = $6,000

So, Ron's capital balance equals to

= Ron's capital - Ron's given amount

= $80,000 - $6,000

= $74,000