Question

In the LMN partnership, Lynn's capital is $60,000, Marty's is $80,000, and Nancy's is $70,000. They share income in a 4:3:3 ratio, respectively. Nancy is retiring from the partnership. Each of the following questions is independent of the others.

Refer to the above information. Nancy is paid $76,000, and all implied goodwill is recorded. What is the total amount of goodwill recorded?
A. $20,000
B. $14,000
C. $6,000
D. $0

Answer 1

A. $20,000

Step-by-step explanation:

Lynn 60,000

Marty 80,000

Nancy 70,000

Total 210,000

The buyout for nancy consist in:

capital balance + Nancy share of unrecorded goodwill

76,000 = 70,000 + 6,000 nancy goodwill

Nnacy share income ratio is 30% so total goodwill is:

6,000/30% = 6,000 / 0.3 = 20,000

The journal entry will be:

goodwill 20,000

Nancy Account 70,000

Cash 76,000

Lynn 8,000

Marty 6,000