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 $60,000 cash.Assuming the assets have been properly revalued,the entry to withdraw Wally from the partnership would include a debit to:

Question

Quizplus · Accepted Answer

Wally's capital account balance is $50,000 and he is accepting $60,000 in cash to withdraw, resulting in a loss for him. Before his withdrawal, the partnership assets were revalued, which would increase the capital balances of Willie and Watson. The total revaluation surplus is $55,000 (($150,000 - $120,000) + ($125,000 - $50,000)). Wally's share of the revaluation surplus is 3/10 or $16,500 (($55,000) x (3/10)). Therefore, the entry to withdraw Wally from the partnership would include a debit to Wally, Capital for $81,500 ($50,000 - $16,500 - $60,000).

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