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 $84,000, and no goodwill is recorded. What is Lynn's capital balance after Nancy withdraws from the partnership?
A. $68,000
B. $54,000
C. $53,000
D. $52,000

Answer 1

Answer:

D. $52,000

Explanation:

As for the provided information,

We have,

Total capital of Nancy = $70,000

Payment to Nancy on retirement = $84,000

Since no goodwill is recorded any extra payment to Nancy will be debited against existing partner's capital account.

Amount debited against Lynn's Capital Account = ($84,000 - $70,000) $\times$ 4/(4+3) = $8,000

Balance of capital after such payment of Lynn's capital account = $60,000 - $8,000 = $52,000.