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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

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Answer:

D) $165,000

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

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