Question

If a partner withdraws by selling his equity interest to the partnership in exchange for an amount greater than the balance in his capital account, the excess payment is treated as a bonus to the remaining partners.

a. True
b. False

Answer 1

False. The excess payment is treated as a capital gain for the withdrawing partner, not a bonus to the remaining partners.

Step-by-step explanation:

False. If a partner withdraws by selling his equity interest to the partnership in exchange for an amount greater than the balance in his capital account, the excess payment is actually treated as a capital gain for the withdrawing partner. It is not considered a bonus to the remaining partners.

For example, let's say Partner A sells his equity interest to the partnership for $10,000, but the balance in his capital account is only $8,000. The $2,000 difference is treated as a capital gain for Partner A. The remaining partners do not receive a bonus.

If a partner withdraws by selling his equity interest to the partnership in exchange for an amount greater than the balance in his capital account, the excess payment is false.

nstead, this excess is generally considered to be goodwill and is paid to the withdrawing partner as part of the selling price for their ownership interest in the partnership. No bonus is recorded for the remaining partners in this transaction. However, if the partnership agreement specifies a different treatment of the excess, then that agreement would take precedence.