On November 30 capital balances are Roses $300000 Ellis $25000 and Gise $250000. The income ratios are 20% 20% and 60% respectively. Roses decides to retire from the partnership. The partnership pays Roses $350000 cash for her partnership interest. After Rose's retirement what is the balance of Ellis's capital account?

Question

Quizplus · Accepted Answer

First, we need to find the total capital of the partnership before Rose's retirement:
300,000 (Rose) + 25,000 (Ellis) + 250,000 (Gise) = 575,000

Next, we can calculate the amount of income allocated to Ellis using the income ratio:
Income allocated to Ellis = 20% x 575,000 = 115,000

To determine Ellis's ending capital balance after Rose's retirement, we need to subtract any withdrawals/payments to partners and add their share of income. Since we know that the partnership paid Rose $350,000 in cash for her partnership interest, we can calculate the partnership's new total capital after the payment:
575,000 - 350,000 = 225,000

Since Rose had a 50% share of the partnership before her retirement (her capital balance of 300,000 represents half of the total capital), we know that after her retirement, there are two remaining partners with equal ownership. This means that Ellis and Gise each now own 50% of the partnership, so they will split the remaining capital equally.

Ellis's new capital balance = 1/2 x (225,000 - 25,000 + 115,000) = $237,500

On November 30 Capital Balances Are Roses $300000 Ellis $25000