Question

Nunes, Orta and Paulo are partners providing engineering services. Relevant data regarding income-sharing relationships and capital balances are as follows:

Partner	Capital Balance	Income Share
Nunes	$ 250,000	20%
Orta	180,000	30%
Paulo	150,000	50%
Totals	$ 580,000	100%

Paulo decides to retire and receives $175,000 in cash from the partnership.

If the bonus method is used to account for the retirement, Nunes' capital balance after Paulo's retirement is:

	A.	$245,000
	B.	$260,000
	C.	$255,000
	D.	$240,000

Answer 1

Answer:

Using the bonus method the excess payment is treated as a bonus to the retiring partner. The remaining partners incur the cost or paying the bonus in proportion to their relative profit sharing ratio before the partner retired.

Paulo's capital balance = 150000

Received at retirement = 175000

Bonus = 175000 - 150000

= 25000

Sharing of bonus wih remaining partner

Nune's share = 25000 * 2 / 5 ( remaining partner ratio = 2:3)

= 10000

Remaining nune's capital = 250000 - 10000

= 240000

Option D is correct.

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