Ho-Kim-Li Oriental Design is a partnership owned by three individuals. The partn

Question

Ho-Kim-Li Oriental Design is a partnership owned by three individuals. The partners share profits and losses in the ratio of 30% to Ho, 40% to Kim, and 30% to Li. At December 31, 2008, the firm has this balance sheet: Ho withdraws from the partnership on this date. Requirements Record Ho's withdrawal from the partnership under the following plans: 1. In a personal transaction, Ho sells her equity to Win, who pays Ho $75,000 for her interest. Kim and Li agree to accept Win as a partner. 2. The partnership pays Ho cash of $ 10,000 and gives her a note payable for the remainder of her book equity in settlement of her partnership interest. 3. The partnership pays Ho $44,000 for her book equity. 4. The partners agree that the equipment is worth $160,000 and that accumulated depreciation should remain at $30,000. After the revaluation, the partnership settles with Ho by giving her cash of $5,000 and inventory for the remainder of her book equity.

Explanation / Answer

Solution.

Preparing journal entry for different plan of adjustment of partner equity.

Plan Particulars Debit Credit 1 Cash    75,000.00 Sale of partnership right    75,000.00 2 Ho capital account    30,000.00 Cash    10,000.00 Bill receivable    20,000.00 3 Ho capital account    30,000.00 Goodwill    14,000.00 P&L apporopriation    44,000.00 4 Ho capital account    42,000.00 Cash      5,000.00 Inventory    37,000.00

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