Triple A Accountants is a partnership with three partners. On February 28, 2014, the three partners, M.

Question:

Triple A Accountants is a partnership with three partners. On February 28, 2014, the three partners, M. Kumar, H. Deol, and A. Kassam, have capital balances of $85,000, $72,000, and $43,000, respectively. The profi t and loss ratio is 4:3:1. On March 1, 2014, Deol withdraws from the partnership and they agree to pay him $90,000 cash from the partnership assets.

After Deol leaves, Kumar and Kassam agree to a 4:2 profit ratio. During the year ended February 28, 2015, the partnership earns a profit of $24,000. Neither Kumar nor Kassam makes any withdrawals because the partnership is short of cash aft er paying Deol. On March 1, 2015, Kumar and Kassam agree to admit C. Mawani to the partnership with a 45% interest for $75,000 cash. After Mawani is admitted, the new profit ratio will be 4:2:5 for Kumar, Kassam, and Mawani, respectively.

Instructions

(a) Journalize the withdrawal of Deol from the partnership.

(b) What are the balances in Kumar's and Kassam's capital accounts after Deol leaves the partnership?

(d) What is the total partnership capital on March 1, 2015, prior to admitting Mawani?

(e) Prepare the journal entry to record the admission of Mawani into the partnership.

(f) What is the balance in each of the partners' capital accounts after Mawani is admitted to the partnership?

Taking It Further

Why would the remaining partners agree to pay a bonus to a partner who is withdrawing from the partnership?

Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...