Retirement of Two Partners Thirty years ago, five mechanics formed a partnership and established an automobile repar shop. Two of the partners, Decker and Groth, are now rebring. The other three partners, Farmer, Wang and Lux, are continuing th 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 Cish $130.000 Aunts payable $175,000 ventory of pam 210000 130.000 100 000 Capital Decker 250.000 300,000 Capital Grith 150,000 bung ne Land 210.000 90.000 Capital Farmer 225.000 Capital Wang Capital 25.000 131.000 11.060.000 tall and capital $1.000.000 All partners agreed that Decker should receive $287.500 for his interest in the business and Groth should receive $187,500 Farmer proposed the bonus method for recording the reorements. Wang objects to this method and suggests the partial goodwill approach Required (a) Prepare the journal entry to record the retirements under the bonus method General journal Description Capital Groth Camer Credie 150000 -29000 25000 Captal Wang Cash and ra Prepare the journal entry to reard the retirements under the parul goodwill approach Description Crede C mybusinesic.com 206 1033 Business Course Return to course D ACC 3 Spring C Support Dashboard Stewart, Retirement of Two Partners Thirty years ago, five mechanics formed a partnership and established an automoble repair shop. Two of the partners Decker and Groth, are now retining. The other thene 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 1130,000 218,000 Accounts payate $175,000 Laan payabis 100,000 very of parts Tapet, net 120.000 Capital Decker 250.000 300,000 Capital-Groth 150.000 Pulding t Land 210.000 Capital Fanner 225,000 90.000 Captal-Wang 25,000 Capital L 135000 alame $1.000.000 tses and canal $1.000.000 All partners agreed that Decker should receive $287,500 for his interest in the business and Groth should receive $187,500. Farmer proposed the bonus method for recording the retirements. Wang objects to this method and suggests the partial goodwill approach. Required (a) Prepare the journal entry to record the retirements under the bonus method General journal Description Capta Decke Debit 203.000 Credit Cap Grom 153,000 Captal Farmer 25,000 Captar-Wing 25.000 Cap 15,000 475,000 Chander assem hi Prepare the journal entry to record the irements under the partial goodwil approach General journal Description Debit Credit . (b) Prepare the journal entry to record the retirements under the partial goodwill approach. General Journal Description Goodwill Capital - Decker Capital - Groth + Debit Credit 137,500 0 0 0 0 0 To record partial goodwill prior to retirement of Decker and Growth. Capital - Decker Capital Groth Cash and other assets To record retirement of Decker and Growth. = 0 0 0 (c) Why does Wang object to the bonus method of accounting? Under the bonus method, Wang's capital balance is reduced to zero. CUnder the bonus method, Wang must pay cash to the other remaining partners. Under the bonus method, Wang pays more cash to the retired partners. OUnder the bonus method, no goodwill is attributed to Wang. 000 (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. The firm is insolvent. The firm is not profitable. The firm does not have sufficient cash to pay the retirees. Previous Save Answers