Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively. The partners share profits and losses 20%, 40%, and 40% respectively.
-Anne retires and is paid $80,000 based on the terms of the original partnership agreement. If the bonus method is used, what is the capital of the remaining partners?

Question

Quizplus · Accepted Answer

After Anne's retirement and payment of $80,000, the remaining capital in the partnership is $40,000 + $50,000 + $30,000 - $80,000 = $40,000. This remaining capital is shared according to their profit and loss ratios of 20%, 40%, and 40%. Using the bonus method, the $30,000 bonus is deducted from the remaining capital and distributed among the remaining partners. Donald's share is 20% or 1/3 of the bonus, which is $10,000, and Todd's share is 40% or 2/3 of the bonus, which is $20,000. Therefore, Donald's remaining capital is $40,000 - $10,000 = $30,000, and Todd's remaining capital is $30,000 - $20,000 = $10,000. The best choice is option B.

Donald, Anne, and Todd Have the Following Capital Balances; $40,000