Question

Wilma, Betty, and Fred are partners who share income and losses in a 5:3:2 ratio. Wilma decides to retire from the partnership when their capital balances are $50,000 for Wilma, $60,000 for Betty and $30,000 for Fred. Wilma is paid cash of $45,000 to retire. To record Wilma's retirement from the partnership, Wilma's Capital account should be __________.

Answer 1

Answer:

debited

Explanation:

Partnership refers to a mutual agreement wherein two or more individuals agree carry out a business and to share profits and losses in a specified ratio or as per the clauses of the partnership deed.

When partners retire, the balances standing to the credit of their capital accounts needs to be settled or paid off.

As per the given information, Wilma is paid $45000 in cash. The journal entry in this case would be:

Wilma's Capital A/C                                    Dr.  $45000

    To Cash A/C                                                                $45000

For the remaining balance, Wilma shall be paid in cash as follows,

Wilma's Capital A/C                                    Dr. $5000

     To Cash A/c                                                            $5000

(Being settlement of a retiring partner's capital account being recorded)