Question

In the LMK partnership, Luis’s capital is $40,200, Marty’s is $51,100, and Karl’s is $30,500. They share income in a 4:1:1 ratio, respectively. Karl is retiring from the partnership.

Required:

Prepare journal entries to record Karl’s withdrawal according to each of the following independent assumptions:

a.	Karl is paid $39,600, and no goodwill is recorded. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

       

b.	Karl is paid $43,900, and only his share of the goodwill is recorded. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

       

c.	Karl is paid $35,600, and all implied goodwill is recorded. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.)

Answer 1

Answer

Date	Journal	Debit	Credit
a	Karl Capital	30,500
	Luis Capital ($9,100 * 4/5)	7,280
	Marty Capital ($9,100 * 1/5)	1,820
	Cash		39,600
	(Being the excess of $9,100 ($39,600 - 30,500) is adjusted to remaining partners in 4:1)
b	Goodwill	13,400
	Karl Capital		13,400
	(Being the excess of $13,400 ($43,900 - 30,500) is considered as Goodwill)
	Karl Capital	43,900
	Cash		43,900
	(Being cash paid to Karl)
c	Goodwill	30,600
	Luis Capital		20,400
	Marty Capital		5,100
	Karl Capital		5,100
	(Being goodwill recorded)
	Karl Capital	35,600
	Cash		35,600
	(Being karl paid in cash)

Case 3

Goodwill Share of Karl = Cash paid to Carl – Karl Capital

= $35,600 – 30,500

Goodwill Share of Karl = $5,100

Total Goodwill of the firm = Goodwill Share of Karl *6/1

= $5,100 * 6/1

=$30,600

Luis Share in Firm’s Goodwill = $30,600 * 4/6

Luis Share in Firm’s Goodwill = $20,400

Marty Share in Firm’s Goodwill = $30,600 * 1/6

Marty Share in Firm’s Goodwill = $5,100

Karl Share in Firm’s Goodwill = $30,600 * 1/6

Karl Share in Firm’s Goodwill = $5,100

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