Nick Rawls is to retire from the partnership of Rawls and Associates as of March 31, the end of the current fiscal year

Nick Rawls is to retire from the partnership of Rawls 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: Nick Rawls, $265,000; Sarah Fitzpatrick, $130,000; and Antoine Faber, $165,000. 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 $24,000, and the allowance for doubtful accounts should be increased by $3,000. Rawls agrees to accept a note for $170,000 in partial settlement of his ownership equity. The remainder of his claim is to be paid in cash. Fitzpatrick and Faber are to share equally in the net income or net loss of the new partnership.

Journalize the entries to record (a) the adjustment of the assets to bring them into agreement with current market prices and (b) the withdrawal of Rawls from the partnership.


Answer:



















a. Merchandise Inventory 24,000
Allowance for Doubtful Accounts 3,000
Nick Rawls, Capital* 9,000
Sarah Fitzpatrick, Capital** 6,000
Antoine Faber, Capital** 6,000

* ($24,000 – $3,000) × 3/7
** ($24,000 – $3,000) × 2/7
b. Nick Rawls, Capital* 274,000
Cash 104,000
Notes Payable 170,000

* $265,000 + $9,000