After closing the temporary owners' equity accounts into Income Summary, and after allocating the net income and closing the partners' drawing accounts, assume the partners' capital accounts had credit balances as follows: Ryan, $40,000; O'Malley, $60,000; Sullivan, $45,000. Partners share profits and losses as follows: Ryan, 20%; O'Malley, 30%; and Sullivan, 50%. If Sullivan retired and withdrew $40,000 in settlement of his/her equity and settlements are allocated according to capital interests, the amount entered in Ryan's capital account would be a

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Sullivan's withdrawal reduces total capital by $40,000. Ryan's capital interest is 20%, so his capital account is reduced by 20% of $40,000, or $8,000. However, since settlements are allocated according to capital interests, Ryan's capital account is credited with $2,000 to maintain his 20% interest in the partnership.

After Closing the Temporary Owners' Equity Accounts into Income Summary