Simonsen, Paulson, and Richardson are partners in a firm with the following capital account balances: Paulson is retiring from the partnership on December 31, 2013. The profit-and-loss-sharing ratio among Simonsen, Paulson, and Richardson is 1:3:2, in the order given. Paulson is paid $100,000 cash in full compensation for her capital account balance. Journalize the cash payment of $100,000 to Paulson upon retirement.

Question

Simonsen, Paulson, and Richardson are partners in a firm with the following capital account balances:  Paulson is retiring from the partnership on December 31, 2013. The profit-and-loss-sharing ratio among Simonsen, Paulson, and Richardson is 1:3:2, in the order given. Paulson is paid $100,000 cash in full compensation for her capital account balance. Journalize the cash payment of $100,000 to Paulson upon retirement.

Quizplus · Accepted Answer

Since Paulson's capital account balance is $300,000 (3/6 of the total capital of $600,000), and she is receiving $100,000 in cash, her remaining share in the partnership will be $200,000 ($300,000 - $100,000). The journal entry to record the payment of $100,000 to Paulson will be a debit to Paulson's capital account for $100,000 and a credit to cash for $100,000. Therefore, the correct answer is B, which shows this journal entry.

Simonsen, Paulson, and Richardson Are Partners in a Firm with the Following