Question

The partnership of Matteson, Richton, and O’Toole has existed for a number of years. At the...

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 $ 174,800 30 %
Richton 205,200 50
O’Toole 195,000 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 $580,000. Regarding the individual assets, the appraiser finds a building with a book value of $275,000 has a fair value of $410,000. 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 $310,000 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.

1. Record the building appreciation to old partners.

2. Record O'Toole's withdrawal from the partnership.

Homework Answers

Answer #1

As the partners do not wish to record a goodwill, the hybrid approach

a hybrid approach will record identifiable asset fair value changes and the corresponding capital

adjustments, but not the goodwill. The remaining excess payment to the withdrawing partner after the revaluation will be then treated as a bonus.

Building 40,000

Matteson, capital 12,000

Richton, capital 20,000

O’Toole, capital 8,000

O’Toole, capital 108,000

Matteson, capital 4,500

Richton, capital 7,500

Cash 120,000

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The partnership of Matteson, Richton, and O’Toole has existed for a number of years. At the...
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 $ 215,600 30 % Richton 224,400 45 O’Toole 225,000 25 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...
The partnership of Matteson, Richton, and O’Toole has existed for a number of years. At the...
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 $ 78,750 35 % Richton 131,250 45 O’Toole 110,000 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...
9. Final distribution of partnership cash in made in according to what rule: a. partner with...
9. Final distribution of partnership cash in made in according to what rule: a. partner with highest capital balance paid first b. partner who joined the partnership earliest is paid first c. partner who worked the hardest is paid first d. partners are paid in proportion to original profit and loss percentages e. partners are paid in proportion to final capital balances 10. Which is true about obligations due to partnership creditors in a liquidation of a partnership. a. partnership...
The CRT partnership has decided to terminate operations and to liquidate the partnership assets. There are...
The CRT partnership has decided to terminate operations and to liquidate the partnership assets. There are no partner loans, and all partners have positive capital balances. Gains and losses on liquidation and cash distributions to partners should be allocated as follows: Gains and Losses Cash Distributions A) In profit and loss ratio Based on capital balances B) Based on capital balances In profit and loss ratio C) In profit and loss ratio In profit and loss ratio D) Based on...
A partnership of attorneys in the St. Louis, Missouri, area has the following balance sheet accounts...
A partnership of attorneys in the St. Louis, Missouri, area has the following balance sheet accounts as of January 1, 2015: Assets . . . . . . . . . . . . . . . . . . . . . $320,000 Liabilities . . . . . . . . . . . . . . . . . . $120,000 Athos, capital . . . . . . . . . . . . . ....
A partnership of attorneys in the St. Louis, Missouri, area has the following balance sheet accounts...
A partnership of attorneys in the St. Louis, Missouri, area has the following balance sheet accounts as of January 1, 2018: Assets $ 370,000 Liabilities $ 116,000 Athos, capital 98,000 Porthos, capital 88,000 Aramis, capital 68,000 According to the articles of partnership, Athos is to receive an allocation of 50 percent of all partnership profits and losses while Porthos receives 30 percent and Aramis, 20 percent. The book value of each asset and liability should be considered an accurate representation...
A partnership has the following capital balances with partners' profit and loss percentages indicated parenthetically: Burks...
A partnership has the following capital balances with partners' profit and loss percentages indicated parenthetically: Burks (35%) $ 280,000 Donovan (40%) 300,000 Watkins (25%) 170,000 Ranzilla agrees to pay a total of $245,000 directly to these three partners to acquire a 25 percent ownership interest from each. The partnership will record goodwill based on the new partner's payment. What is Donovan’s capital balance after the transaction? $398,000 $392,000 $294,000 $225,000
6) The Hylands Hotels are liquidating their partnership. Before selling the assets and paying liabilities, the...
6) The Hylands Hotels are liquidating their partnership. Before selling the assets and paying liabilities, the capital balances for the partners are: Martha $45,000; Nathan $36,000 and Orin $26,000. The profit and loss sharing ratio has been 2:2:1 for Martha, Nathan and Orin respectively. The partnership has cash $68,000, $75,000 noncash assets and $36,000Accounts payable. 6a. Assume the partnership sells the non-cash assets and received $84,000 in cash. 6b. Assume the partnership sells the noncash assets and received $35,000. Instructions...
Following is the current balance sheet for a local partnership of doctors: Cash and current assets...
Following is the current balance sheet for a local partnership of doctors: Cash and current assets . . . . . . . . . . . . . . . . . . . . . $ 30,000 Land . . . . . . . . . . . . . . . . . . . . . . . 180,000 Building and equipment   (net) . . . . . . . . . . . ....
Following is the current balance sheet for a local partnership of doctors: Cash and current assets...
Following is the current balance sheet for a local partnership of doctors: Cash and current assets $ 64,000 Liabilities $ 66,000 Land 208,000 A, capital 46,000 Building and equipment (net) 168,000 B, capital 66,000 C, capital 116,000 D, capital 146,000 Totals $ 440,000 Totals $ 440,000 The following questions represent independent situations: E is going to invest enough money in this partnership to receive a 20 percent interest. No goodwill or bonus is to be recorded. How much should E...