Question

1. Nunes, Orta and Paulo are partners providing engineering services. Relevant data regarding income-sharing relationships and capital balances are as follows: Partner Capital Balance Income Share Nunes $ 250,000 20% Orta 180,000 30% Paulo 150,000 50% Totals $ 580,000 100% 2. Orta decides to retire and receives $159,000 in cash from the partnership. If the bonus method is used to account for the retirement, Paulo's capital balance after Orta's retirement is: A. $135,000 B. $139,500 C. $160,500 D. $165,000

Answer 1

D) $165,000

Step-by-step explanation:

Partner Capital Balance Income Share

Nunes $250,000 20%

Orta $180,000 30%

Paulo $150,000 50%

Totals $580,000 100%

Orta's balance - capital balance = $180,000 - $159,000 = $21,000 which will increase the partnership's total capital balance

partnership's capital balance = $421,000

the extra $21,000 will be divided according to each remaining partner's income distribution:

• Paulo = (50%/70%) x $21,000 = $15,000
• Nunes = (20%/70%) x $21,000 = $6,000

Paulo's capital balance = $150,000 + $15,000 = $165,000