Withdrawal of Partner Lane Stevens is to retire from the partnership of Stevens

Question

Withdrawal of Partner Lane Stevens is to retire from the partnership of Stevens and Associates as of March 31, the end of the current fiscal year. After closing the accounts, the capital balances of the partners are as follows: Lane Stevens, $223,000; Cherrie Ford, $114,000; and LaMarcus Rollins, $127,000. They have shared net income and net losses in the ratio of 3:2:2. The partners agree that the merchandise inventory should be increased by $20,300, and the allowance for doubtful accounts should be increased by $4,900. Stevens agrees to accept a note for $185,000 in partial settlement of his ownership equity. The remainder of his claim is to be paid in cash. Ford and Rollins are to share equally in the net income or net loss of the new partnership. a. Journalize the entry to record the adjustment of the assets to bring them into agreement with current market prices. For a compound transaction, if an amount box does not require an entry, leave it blank. Merchandise Inventory Allowance for Doubtful Accounts Lane Stevens, Capital Cherrie Ford, Capital LaMarcus Rollins, Capital Feedback b. Journalize the entry to record the withdrawal of Stevens from the partnership. For a compound transaction, if an amount box does not require an entry, leave it blank. Lane Stevens, Capital Cash Notes Payable

Explanation / Answer

Solution: Date Particulars Debit Credit March 31 Merchandise Inventory                                         20,300 Allowance for Doubtful Accounts 4,900 Lane Stevens, Capital 6,600 Cherrie Ford, Capital 4,400 LaMarcus Rollins, Capital 4,400 March 31 Lane Stevens, Capital 229,600 Cash 44,600 Notes Payable 185,000 Working Notes: Date Particulars Debit Credit March 31 Merchandise Inventory                                         20,300 Allowance for Doubtful Accounts 4,900 Lane Stevens, Capital 6,600 [(20,300 -4,900) x 3/7 ] Cherrie Ford, Capital 4,400 [(20,300 -4,900) x 2/7 ] LaMarcus Rollins, Capital 4,400 [(20,300 -4,900) x 2/7 ] March 31 Lane Stevens, Capital 229,600 [$223,000 + 6,600 = 229,600 ] Cash 44,600 [229,600 -185,000= 44,600 ] Notes Payable 185,000 Please feel free to ask if anything about above solution in comment section of the question.

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