Question

?Simonsen, Paulson, and Richardson are partners in a firm with the following capital account? balances:

Simonsen	?$40,000
Paulson	?$160,000
Richardson	?$120,000

The? profit-and-loss-sharing ratio among? Simonsen, Paulson, and Richardson is? 1:3:2, in the order given. Paulson is retiring from the partnership on December? 31, 2017. Paulson is paid? $230,000 cash in full compensation for her capital account balance. Which of the following is true of the journal entry prepared at the time of? retirement? (Round the final answer to the nearest? dollar.)

A.Debit? Richardson's capital account by? $35,000.

B.Debit? Simonsen's capital account by? $23,333.

C.Debit? Paulson's capital account by? $230,000.

D.Debit Income Summary by? $70,000.

Answer 1

Statement B is true.

The amount paid extra to Paulson upon retirement is in excess by $ 70,000 from her existing balance in her capital account.

The remaining partners - Simonsen and Richardson have to bear this excess as both of them will be gaining from retirement of Paulson.

After the share of Paulson is added to Simonsen and Richardson in their current ratio, their new ratio will be 1:2 in that order.

Therefore, the excess paid to Paulson i.e. $ 70,000 will be divided among Simonsen and Richardson in their profit sharing ratio of 1:2; meaning thereby that Simonsen will bear $ 23,333 and Richardson will bear $ 46,667.

Thus, stament B holds true.