Reference no: EM132786848
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:
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Cash
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$208,000
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Accounts payable
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$288,000
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ACcounts receivable
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256,000
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Loan payable
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128,000
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Iventory of parts
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128,000
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Capital - Decker
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160,000
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Equipment, net
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288,000
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Capital - Groth
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128,000
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Bgilding, net
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96,000
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Capital - Farmer
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224,000
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Land
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80,000
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Capital - Wang
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24,000
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Capital - Lux
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104,000
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Total assets $1,056,000
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Total liabilities and capital
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$1,056,000
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All partners agreed that Decker should receive $200,000 for his interest in the business and Groth should receive $160,000. Farmer proposed the bonus method for recording the retirements. Wang objects to this method and suggests the partial goodwill approach.
Problem (a) Prepare the journal entry to record the retirements under the bonus method
Problem (b) Prepare the journal entry to record the retirements under the partial goodwill approach.
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