Question

Lopez, Cruz, and Perez are partners and share net income and loss in a 6:4:1 ratio. On December 31, Perez withdraws from the partnership when the equities of the partners are: Lopez, $3,000; Cruz, $1,800; and Perez, $1,200. Prepare journal entries to record Perez’s withdrawal under each of the following separate situations: Perez is paid for her equity using partnership cash of (1) $1,200; (2) $1,600; and (3) $700.

Answer 1

Answer:

Journal entries per situation:

(1) partnership cash of $1.200:

Credit -> 1.200 Cash

Debit -> 1.200 Equity

(2) partnership cash of $1.600:

Credit -> 1.600 Cash

Debit -> 1.200 Equity + 400 Losses on equity

(1) partnership cash of $700:

Credit -> 1.200 Cash + 500 Other income on equity

Debit -> 1.200 Equity

Explanation:

In order to compensate the Balance Sheet, is necessary to record additional losses when the payment for the equity is higher than the current value (case 2), or additional income when is lower than the current value (case 3).