Reference no: EM132983622

Question - Partners Lazaro, Mario, Nestor and Orlando share profits in the ratio of 40%, 30%, 15% and 15%, respectively. The partnership agreement provides that in the event of the death of a partner, the firm shall continue until the end of the fiscal period. Profits shall be considered to have earned proportionately during the period and the deceased partner's capital shall be adjusted by his share of the profit or loss to the date of death. From the date of death until the date of settlement with the estate there shall be added interest of 10% computed on the adjusted capital. The remaining partners shall continue to divide profits in the old ratio. Payment to the estate shall be made within two years from the date of the partner's death.

As of January 1, 2019, the capital balances of the partners were as follows:

Lazaro P84,000

Mario 75,000

Nestor 48,000

Orlando 45,000

P252,000

Orlando died on September 30, 2019. The books of the partnership were closed as of December 31, arriving at a credit balance of P45,000 for the Income and Expense Summary Account.

On December 31, 2019, Nestor notified the remaining partners that he was retiring from the partnership and was willing to accept in settlement of his interest the balance of his capital account after the distribution of profits less 25%.

The remaining partners accepted his offer and issued a 90-day, 10% note to Nestor in payment of his interest.

Instructions - Make all the entries to reflect the above on the books of the partnership as follow:

a. Close Orlando, Capital to a Liability account

b. Distribute the profit on September 30, 2019

c. Record the interest accruing as of December 31, 2019

d. Distribute the balance of the profit to the remaining partners

e. Retirement of Nestor