Table 12-9
Wally, Willie, and Watson formed a partnership several years ago. Wally has decided to withdraw from the partnership. The current capital balances are: Wally, capital, $50,000; Willie, capital, $65,000; and Watson, capital, $100,000. Prior to the withdrawal of Wally, the partners agree to revalue some of the partnership assets. Inventory with a cost of $120,000 has a current market value of $150,000; land with a cost of $50,000 has a current market value of $125,000. Wally, Willie, and Watson share net income and losses in a 3:3:4 ratio. Willie and Watson will share net income in a 3:4 ratio.
-Refer to Table 12-9.What is total capital for the partnership after revaluing the assets?

Question

Quizplus · Accepted Answer

The total capital for the partnership after revaluing the assets is calculated by first adjusting the capital for the increase in asset values. The inventory's value increases by $30,000 ($150,000 - $120,000) and the land's value increases by $75,000 ($125,000 - $50,000), for a total increase of $105,000. This increase is shared according to the partners' income and loss sharing ratio (3:3:4), but the total capital is the sum of the original capital balances plus the total increase in asset values. Original total capital is $215,000 ($50,000 + $65,000 + $100,000). Adding the $105,000 increase gives a new total capital of $320,000.

Table 12-9 Wally, Willie, and Watson Formed a Partnership Several Years Ago