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.
41. Refer to the information above. Nancy is paid $84,000, and no goodwill is recorded. In the journal entry to record Nancy's withdrawal
A. Lynn, Capital will be debited for $7,000
B. Marty, Capital will be debited for $6,000
C. Nancy, Capital will be credited for $70,000
D. Cash will be debited for $84,000

Answer 1

Answer:

B. Marty, Capital will be debited for $6,000

Explanation:

The journal entry must record the following operations:

Lynn, Capital will be debited for $8,000

Marty, Capital will be debited for $6,000

Nancy, capital will be debited $70,000

Cash will be credited for $84,000  

Income sharing is met, where Lynn and Marty have a 4:3 ratio, that equates to reduced $8,000 of Lynn's capital, and reduced $6,000 of Marty's capital.

Option B es the correct.

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