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Partners' capital accounts with changes in partners

Ruth and Bob decide to form a partnership along with Tribbs Holding Company to purchase an office building. They give you the following facts:
? Tribbs invested $45,000 and is a limited partner. Tribbs receives interest at 6% on its investment.
? Ruth provides $35,000 in computer equipment as a limited partner.
? Bob provides $15,000 as the general partner and receives a salary of $15,000 per year.
? Profits during the year are $60,000 after all expenses.
? At the end of the year, Ruth retires from the partnership. The partnership pays her $50,000. Profit allocation is 45% for Tribbs, 30% for Ruth, and 25% for Bob.
? After Ruth retires, the partnership admits Paul who invests $50,000 and will receive 30% of the partnership's gains and losses.

? Using a worksheet, calculate the partners' balances once Paul is admitted and make the journal entries to update the books.

Solution Preview

I think it is easier to understand the problem if the journal entries are made first. Next I analyzed capital by partner to determine their respective amounts of capital in the entity.

There is a question about whether Bob's salary of $15000 is a true expense of the entity or a distribution. Because the problem states that 'profits during the year are $60,000 after all expenses', I assume the $15,000 has been deducted as an expense. I could be wrong and you might wish to clarify that point with your instructor.

Profits for ...

Solution Summary

The solution explains how to tackle the problem in order to develop the answers; it provides a spreadsheet with a format and amounts from journal entries and a spread by partner. Further included is a narrative with possible alternative treatments for some amounts and the consequences of those treatments.