Question

The partnership of Matteson, Richton, and O’Toole has existed for a number of years. At the present time the partners have the following capital balances and profit and loss sharing percentages: Partner Capital Balance Profit and Loss Percentage Matteson $ 114,800 35 % Richton 165,200 45 O’Toole 145,000 20 O’Toole elects to withdraw from the partnership, leaving Matteson and Richton to operate the business. Following the original partnership agreement, when a partner withdraws, the partnership and all of its individual assets are to be reassessed to current fair values by an independent appraiser. The withdrawing partner will receive cash or other assets equal to that partner’s current capital balance after including an appropriate share of any adjustment indicated by the appraisal. Gains and losses indicated by the appraisal are allocated using the regular profit and loss percentages. An independent appraiser is hired and estimates that the partnership as a whole is worth $690,000. Regarding the individual assets, the appraiser finds a building with a book value of $225,000 has a fair value of $310,000. The book values for all other identifiable assets and liabilities are the same as their appraised fair values. Accordingly, the partnership agrees to pay O’Toole $210,000 upon withdrawal. Matteson and Richton, however, do not wish to record any goodwill in connection with the change in ownership. Prepare the journal entry to record O’Toole’s withdrawal from the partnership. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations.)

Answer 1

Answer Page No ① Jowina Cord A le is coithdrawal rorogantne whip Am muu uutuun WM Building book value - $ 225000 fair value = $310,000 Difference blog book value e fain value = 310,000 - 205000 =$85000 Poro fit and loss percentage of Mabbeson = 35% Richton - 450% O'Toole = 207. Matterson's Capital - 25000 x 35% :.. $29450 Richton's capital = 85000 X 456% = 38250 O'Toole's Capital. = 85000 x 20'%. = $14000

Hybrid approach Page No o In this approach record the pdentifiable assets Lain value changes & corresponding capital changes. After the trevaluation it any remaining excers pay most treated as a bonus to the withdrawing partner. Added fair value = $85000 Excers payment - $ 210,000 O'Toole's share from building = 85000 20%. i ..^ = $ 14000 Capital balance - $145000 Total capital investment = 145000 414000 of o'Toole's = $ 162000 Remaining capital = 210,000 — 163000 = $ 48000 35% Matterson's Capital = 48000 x 35% + 45%

Page No ③ = 48000 x 35 = $ 21000 Richton's Capital - 48000 X – 45% . 35%4.45% = 48000 X 80 $24000 Credit Debit $85000 $29750 $ 38950 $14000 Particular Building Matteson's capital Rich ton's capital O'toole's capital Otodelo capital Matheson's capital Richton's capital cash 4 [622000 $21000 $ 27000 $ 210,000