Question

During the liquidation of Gym, Hob & Ing LLP, Partner Hob withdrew equipment with a cost to the partnership of $18,000, accumulated depreciation of $8,000, and a current fair value of $13,000. The partners shared net income and losses equally. The net debit to Hob's capital account (including any gain or loss on disposal of the equipment), assuming the noncash asset may be distributed safely to Hob, is:

A) $10,000
B) $12,000
C) $13,000
D) $18,000
E) Some other amount

Answer 1

The net debit to Hob's capital account is $13,000, which is the book value of the withdrawn equipment plus the gain recognized from taking it at a higher fair value.The correct answer is C) $13,000.

Step-by-step explanation:

The question concerns the accounting treatment of a partner's withdrawal of equipment from a partnership during liquidation. When Partner Hob withdrew the equipment, the book value of the equipment (cost minus accumulated depreciation) was $10,000 ($18,000 - $8,000). However, Hob took it out at its current fair value of $13,000. The net debit to Hob's capital account would thus be the book value of $10,000 as the equipment is no longer an asset of the partnership, and a gain of $3,000 ($13,000 fair value minus $10,000 book value) is recognized, increasing the capital account.