A bonus to remaining partners upon withdrawal of a partner would result in
Select answer from the options below
a debit to the remaining partner’s capital accounts for the excess cash paid over the capital balance of the withdrawing partner.
a debit to the withdrawing partner’s capital account for the balance in the account.
a debit to the withdrawing partner’s capital account for the cash paid.
a debit to the remaining partner’s capital accounts for the cash received.
a debit to the remaining partner’s capital accounts for the excess cash paid over the capital balance of the withdrawing partner.
a debit to the remaining partner’s capital accounts for the excess cash paid over the capital balance of the withdrawing partner.
To determine the correct option, let's first understand the concept of a bonus payment to remaining partners upon withdrawal of a partner.
When a partner withdraws from a partnership, it may result in a revaluation of the partnership assets and liabilities. If the value of the partnership assets exceeds the combined capital balances of the remaining partners, a bonus payment may be required.
The bonus payment compensates the remaining partners for the additional value they will take on as a result of the withdrawing partner leaving. This bonus payment is essentially the excess cash paid to the withdrawing partner over their capital balance.
Now let's examine the options:
a) Debit to the remaining partner’s capital accounts for the excess cash paid over the capital balance of the withdrawing partner.
This option correctly explains that the remaining partners' capital accounts will be debited for the excess cash paid. It is the correct answer.
b) Debit to the withdrawing partner’s capital account for the balance in the account.
This option incorrectly suggests that the withdrawing partner's capital account should be debited for the entire balance in the account. This does not reflect the concept of a bonus payment.
c) Debit to the withdrawing partner’s capital account for the cash paid.
This option suggests that the withdrawing partner's capital account should be debited for the cash paid. However, this does not consider the excess cash paid over their capital balance, which is the key concept in a bonus payment.
d) Debit to the remaining partner’s capital accounts for the cash received.
This option suggests that the remaining partner's capital accounts should be debited for the cash received. However, this does not accurately represent the situation, as the remaining partners are not receiving the cash - it is being paid to the withdrawing partner.
Therefore, the correct answer is option a) Debit to the remaining partner’s capital accounts for the excess cash paid over the capital balance of the withdrawing partner.