On November 30, capital balances are Howe $90,000, Doss $75,000 and Newlin $75,000. The income ratios are 20%, 20% and 60%, respectively. Howe decides to retire from the partnership. The partnership pays Howe $105,000 cash for her partnership interest. After Howe's retirement, what is the balance of Doss's capital account?

Question

Quizplus · Accepted Answer

When Howe retires, she receives $105,000, which is $15,000 more than her capital balance. This excess is shared by Doss and Newlin according to their income ratios (20% and 60%). Doss's share of the excess is 20% of $15,000, which is $3,000. Therefore, Doss's new capital balance is $75,000 - $3,000 = $72,000.

On November 30, Capital Balances Are Howe $90,000, Doss $75,000