Question

At year-end, the Circle City partnership has the following capital balances:

Manning, Capital	$	230,000
Gonzalez, Capital		210,000
Clark, Capital		180,000
Freeney, Capital		170,000

Profits and losses are split on a 3:3:2:2 basis, respectively. Clark decides to leave the partnership and is paid $194,000 from the business based on the original contractual agreement.

The payment made to Clark beyond his capital account was for Clark's share of previously unrecognized goodwill. After recognizing partnership goodwill, what is Manning’s capital balance after Clark withdraws?

Multiple Choice

A, $240,500

B, $251,000

C, $234,200

D, $244,000

Answer 1

Answer is Option B $ 251000

Explanation given below:-

Clark receives an additional $(194000-180000)= $14000. Because Clark receives 20 percent of profits and losses, this allocation indicates total goodwill of $110,000.

20% of Goodwill = $14000

Goodwill = 14000/0.20 = $70000

Journal	Debit	Credit
Goodwill	70000
Manning (30%)		21000
Gonzalez (30%)		21000
Clark (20%)		14000
Freeney (20%)		14000
The above entry raises Manning’s capital from $230,000 to $251,000.