Retirement of Two Partners Thirty years ago, five mechanics formed a partnership and established an automobile repair shop. Two of the partners, Decker and Groth, are now retiring. The other three partners, Farmer, Wang, and Lux, are continuing the partnership. The original agreement called for an equal division of income. The remaining partners plan to continue this arrangement. The following balance sheet is prepared for the partnership as of the retirement date: Cash Accounts receivable Inventory of parts Equipment, net $130,000 160,000 80,000 180,000 Accounts payable $180,000 Loan payable Capital - Decker 80,000 100,000 Capital - Groth 80,000 Building, net Land 60,000 50,000 Capital - Farmer 140,000 Capital - Wang Capital - Lux 15,000 65,000 Total assets $660,000 Total liabilities and capital $660,000 All partners agreed that Decker should receive $125,000 for his interest in the business and Groth should receive $100,000. Farmer proposed the bonus method for recording the retirements. Wang objects to this method and suggests the partial goodwill approach. (a) Prepare the journal entry to record the retirements under the bonus method. General Journal Description Debit Credit = Capital - Groth Capital Farmer Capital - Wang Capital - Lux (b) Prepare the journal entry to record the retirements under the partial goodwill approach. General Journal Description Capital - Groth To recard goodwill prior to retirement of Decker and Groth. Capital Groth To record retirement of Decker and Groth. Debit Credit (c) Why does Wang object to the bonus method of accounting? OUnder the bonus method, Wang's capital balance is reduced to zero. OUnder the bonus method, Wang must pay cash to the other remaining partners. OUnder the bonus method, Wang pays more cash to the retired partners. OUnder the bonus method, no goodwill is attributed to Wang. (d) Regardless of the accounting method employed, what immediate problem for the business can you identify at the time of retirement? OThe firm's total debts exceed the assets available to pay those debts. OThe firm is insolvent. The firm is not profitable. OThe firm does not have sufficient cash to pay the retirees