Ronald, Ross, and Carol opened a partnership firm. Ronald has a capital of $75,000; Ross has a capital of $120,000; and Carol has a capital of $93,000. Ronald decided to withdraw from the partnership and received $84,000. Which of the following will be included in the journal entry to record this? (Assume an equal profit-loss sharing between the existing partners)

Question

Quizplus · Accepted Answer

When Ronald withdraws, his capital account needs to be debited for the amount he received, which is $84,000. Since the remaining partners share the profit and loss equally, the total capital of the partnership will be divided equally among them after Ronald's withdrawal. Ross has a capital of $120,000, which is $12,000 more than the equal share of $96,000 ($288,000 total capital divided by 3 partners). Therefore, Ross needs to reduce his capital account by $6,000 ($12,000/2) to adjust to his equal share. Since Carol has a capital of $93,000, which is $3,000 less than the equal share, she needs to increase her capital account by $3,000 to adjust to her equal share. As a result, Carol, Capital needs to be debited for $4,500 ($3,000 + $1,500 adjustment for Ronald's withdrawal) and Ross, Capital does not need to be involved in the journal entry. Cash will be credited for $84,000, which is the amount Ronald received from the partnership. Therefore, the correct answer is C.

Ronald, Ross, and Carol Opened a Partnership Firm