Question

The financial records of ABC Partnership reflect the following capital account balances:

Arthur $150,000
Beatrice 350,000
Charles 100,000
Arthur, Beatrice, and Charles share equally in profits and losses. On January 1, Charles meets with Arthur and Beatrice and decides to withdraw from the partnership in return for a cash payment of $100,000.
What is the balance in Arthur's capital account after Charles' withdraw and distribution of $100,000?

Answer 1

After Charles' withdrawal from the partnership and the $100,000 distribution, the remaining total capital is divided equally between Arthur and Beatrice. Arthur's capital account balance would then be $250,000.

Step-by-step explanation:

To determine the balance in Arthur's capital account after Charles' withdrawal from the ABC Partnership and the distribution of $100,000, it is essential to understand that the partners share equally in profits and losses.

Prior to Charles leaving, the total capital for the partnership is $600,000 ($150,000 + $350,000 + $100,000).

Since Charles withdraws his capital of $100,000, the new total capital is $500,000. No additional information about profit or loss allocation or the partnership agreement following the withdrawal is provided, so it is assumed that the remaining capital is still shared equally between Arthur and Beatrice.

When Charles withdraws his $100,000, the partnership capital is divided equally between Arthur and Beatrice, the remaining partners. This results in each partner having a new capital balance of $250,000 ($500,000 total capital divided by 2). Hence, Arthur's capital account balance after the transaction would be $250,000.

Answer 2

Answer: $150,000

Step-by-step explanation:

Charles's capital account balance is worth $100,000 which is exactly the amount of cash that will be given to him when he exits the partnership. There ware no bonuses to be given as a result.

Because of this, the other partners will keep the same capital account balances as before Charles left. Had it been that they had to pay Charles more than what his account balance was worth, the bonus would have been paid by the two remaining partners from their capital account balances.