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Partnership records show the following capital balances at the date of Hopkin's withdrawal: M. Hammel, $80,000; D. Hopkins, $210,000; and P. Houghton, $100,000. The three partners share income and loss equally. On December 31, Hopkins withdraws and agrees to take $230,000 cash in settlement of her capital balance. Prepare the December 31 journal entry for the partnership. Prepare the December 31 journal entry for the partnership.

User Jenna Pederson
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21 votes
21 votes

Final answer:

The partnership journal entry to record Hopkins's withdrawal consists of debiting the Cash account for $230,000, crediting Hopkins's Capital account for $210,000, and debiting both Hammel's and Houghton's Capital accounts for $10,000 each, as they bear the excess payment equally.

Step-by-step explanation:

The question involves preparing a journal entry for a partnership when one partner withdraws. Specifically, Hopkins is withdrawing from the partnership with Hammel and Houghton. Upon withdrawal, Hopkins receives a higher amount than her capital balance. Since the partners share income and losses equally, the excess amount paid to Hopkins should be recorded as a deduction from the capital accounts of the remaining partners, Hammel and Houghton.

To prepare the journal entry on December 31, first it is necessary to calculate Hopkins's share based on the partnership agreement. Hopkins's capital account balance is $210,000. However, she agrees to take $230,000 upon her withdrawal, which is $20,000 more than her capital account balance. This means that each of the remaining partners, Hammel and Houghton, will bear half of the $20,000 excess payment. The entry would be:

  • Cash (debit) - $230,000
  • Hopkins's Capital (credit) - $210,000
  • Hammel's Capital (debit) - $10,000
  • Houghton's Capital(debit) - $10,000

This entry records the cash paid out to Hopkins and adjusts the capital accounts of the remaining partners.

User Robertzp
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