1. Joe and Bill each own 50% of ABC Co., Inc. Bill wants to retire and be bought out of the company. Joe and Bill reach an agreement, whereby Bill will be paid $100,000. They further agreed that Bill would be paid a lump sum cash payment of $50,000, followed by annual payments of $10,000 for the next five (5) years. How does the company record these transactions on its balance sheet?

1. Debit to cash for $50,000; Credit to long term debt for $50,000; and Credit to Equity for $100,000.
2. Credit to cash for $50,000; Credit to current portion of long term debt for $10,000; Credit to long term debt for $40,000; and Debit to Goodwill for $100,000.
3. Credit to cash for $50,000; Credit to current portion of long term debt for $10,000; Credit to long term debt for $40,000; and Debit to Treasury Stock for $100,000.
4. Debit to cash for $50,000; Debit to current portion of long term debt for $10,000; Debit to long term debt for $40,000; and Credit to Treasury Stock for $100,000.