Final answer:
The statement is true; when a partner withdraws from a partnership by selling their equity interest for more than their capital account balance, the excess is considered a bonus to the remaining partners. This reflects their share of future partnership profits.
Step-by-step explanation:
True, if a partner withdraws from the partnership by selling his equity interest for an amount greater than the balance in his capital account, the excess payment is indeed treated as a bonus to the continuing partners. This bonus is recorded on the partnership's books and reflects the continuing partners' assumption of the withdrawing partner's future share of the partnership's profits, in proportion to their remaining capital balances.
For instance, imagine a partner has a $10,000 balance in his capital account but sells his interest for $15,000. The additional $5,000 paid over the capital account balance is treated as a bonus to the remaining partners. This is based on the premise that the person or entity purchasing the partner's interest is buying into the future profit potential of the partnership, which subsequently enhances the value of the remaining partners' capital accounts.
It is important to note that in most cases, specific partnership agreements and local laws will govern these transactions, and they should be reviewed to ensure proper accounting treatment.