Gary, Peter, and Chris own a firm as partners. Gary has a capital balance of $25,000; Peter a capital balance of $40,000; and Chris has a capital balance of $31,000. As per the partnership agreement, Gary gets a profit share of 2/9; Peter has 4/9; and Chris has 3/9. Which of the following is true, if Gary withdraws from the partnership by receiving $25,000?

Question

Quizplus · Accepted Answer

When Gary withdraws from the partnership by receiving $25,000, his capital account will be debited for $25,000 because he is receiving his share of the capital. The remaining partners (Peter and Chris) will have their capital accounts adjusted to reflect their new profit sharing ratios. There is no need to debit cash since the payment is made using the firm's existing capital. Choice A is incorrect because Peter and Chris will not receive equal amounts. Choice D is incorrect because Peter is not receiving any payment, but rather a change is made to his capital account.

Gary, Peter, and Chris Own a Firm as Partners