On November 30 capital balances are Forsyth $720000 Lagassi $600000 and Kelly $600000. The income ratios are 20% 20% and 60% respectively. Forsytha decides to retire from the partnership. The partnership pays Forsyth $600000 cash for her partnership interest. After Forsyth's retirement what is the balance of Kelly's capital account?

Question

Quizplus · Accepted Answer

1. First we need to calculate the total capital before Forsyth's retirement:

Forsyth = $720000 x 20% = $144000
Lagassi = $600000 x 20% = $120000
Kelly = $600000 x 60% = $360000

Total capital = $144000 + $120000 + $360000 = $624000

2. Then, we need to calculate Kelly's capital balance after Forsyth's retirement:

Forsyth receives $600000, which is deducted from the total capital:

$624000 - $600000 = $240000

Now we need to redistribute Forsyth's share according to the income ratios:

Lagassi = 20%/(20%+60%) x $240000 = $48000 
Kelly = 60%/(20%+60%) x $240000 = $192000

Finally, we need to add each partner's new amount to their previous balance:

Lagassi = $120000 + $48000 = $168000 
Kelly = $360000 + $192000 = $552000

Therefore, the balance of Kelly's capital account after Forsyth's retirement is $552000.

On November 30 Capital Balances Are Forsyth $720000 Lagassi $600000