Adjusting capitals to new ratio after goodwill-inclusive retirement settlement Steps:

• Total book capitals $27,000; equal sharing implies L, M, N each$9,000.
• Firm value $27,000 +$18,000 goodwill = $45,000; N's share$15,000 paid out.
• Remaining book assets $27,000 -$15,000 = $12,000; pre-adjustment remaining capitals$18,000 (overstated by $6,000).
• Post-adjustment capitals total $12,000 in 3:2 ratio: L$7,200 (3/5 × $12,000), M$4,800 (2/5 × $12,000).
• L's capital decreases from $9,000 to$7,200 by $1,800.

Why A is correct:

• Reflects reduction to match remaining assets after unrecorded goodwill payment, with capitals set to new 3:2 ratio per partnership convention.

Why the others are wrong:

• B, D: Ignore capital reduction for goodwill payment; predict increase instead.
• C: Duplicate of A; no unique error.

Final answer: A