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.Wally withdraws from the partnership and accepts $100,000 cash.Assuming the assets have been properly revalued,the entry to withdraw Wally from the partnership includes a (rounded to the nearest dollar):

Question

Quizplus · Accepted Answer

In order to withdraw Wally from the partnership, his capital account must be debited for the amount he is receiving as cash, which is $100,000. However, since the assets have been revalued and their current value is greater than their original cost, the partnership must recognize a gain. This gain is allocated to the partners based on their profit-sharing ratio, which is 3:3:4 for Wally, Willie, and Watson. Therefore, Willie's capital account must be credited for his share of the gain, which is ($150,000 - $120,000) / 3 + ($125,000 - $50,000) / 10 = $7,929. Watson's capital account is not affected by Wally's withdrawal or the asset revaluation.

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