Question

Prepare journal entries to

record Karl's withdrawal according to each of the following independent assumptions:
a.Karl is paid $39,300, and no goodwill is recorded.
b.Karl is paid $43,100, and only his share of the goodwill is recorded.
c.Karl is paid $35,800, and all implied goodwill is recorded

Answer 1

a. Debit: Karl's Withdrawal $39,300

Credit: Cash $39,300

b. Debit: Karl's Withdrawal $43,100

Credit: Cash $39,300

Credit: Goodwill $3,800

c. Debit: Karl's Withdrawal $35,800

Credit: Cash $35,800

Credit: Goodwill $x (calculated based on implied value)

Step-by-step explanation:

In scenario a, where no goodwill is recorded, the journal entry reflects a straightforward withdrawal. Karl's Withdrawal account is debited with the amount of $39,300, and the Cash account is credited for the same amount.

In scenario b, when only Karl's share of goodwill is recorded, the withdrawal entry includes both the cash received and the recorded goodwill. The Karl's Withdrawal account is debited with $43,100, Cash is credited with $39,300, and Goodwill is credited with $3,800.

For scenario c, where all implied goodwill is recorded, the withdrawal entry comprises the cash received and the calculated value of goodwill. The Karl's Withdrawal account is debited with $35,800, Cash is credited with $35,800, and Goodwill is credited with the calculated value.

It's essential to note that in scenario b and c, the Cash account is credited with the actual cash received ($39,300 or $35,800), and the remaining amount is credited to the Goodwill account. The calculations for the goodwill value in scenario c would be based on the implied value in the question. The entries demonstrate how each scenario affects the accounting records when Karl makes withdrawals under different assumptions.