He-Kung-Liu Oriental Design is a partnership owned by three individuals. The partners share profits and losses in the ratio of 30% to He, 40% to Kung, and 30% to Liu. At December 31, 2012, the firm has the following balance sheet:
He withdraws from the partnership on December 31, 2012, to establish her own medical practice.
Requirements
Record He’s withdrawal from the partnership under the following plans:
1. In a personal transaction, He sells her equity to Win, who pays He $100,000 for her interest. Kung and Liu accept Win as a partner.
2. The partnership pays He cash of $25,000 and gives her a note payable for the remainder of her book equity in settlement of her partnership interest.
3. The partnership pays He cash of $70,000.
4. The partners agree that the equipment is worth $165,000 and that accumulated depreciation should remain at $39,000. After the revaluation, the partnership settles with He by giving her cash of $25,000 and inventory for the remainder of her book equity.
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