Thirty years ago, five mechanics formed a partnership and established an automobile repair shop. Two of...
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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: Accounts payable $216,000 Cash Accounts receivable 192,000 Inventory of parts Equipment, net Building, net Land $156,000 Total assets 96,000 216,000 72,000 60,000 Loan payable 96,000 Capital - Decker 120,000 Capital - Groth Capital - Farmer Capital - Wang Capital - Lux 96,000 168,000 18,000 78,000 $792,000 Total liabilities and capital $792,000 All partners agreed that Decker should receive $150,000 for his interest in the business and Groth should receive $120,000. 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. (a) Prepare the journal entry to record the retirements under the bonus method. General Journal Description Capital - Groth Capital - Farmer Capital - Wang Capital - Lux Debit Capital - Groth Description 0 0 0 0 0 0 (b) Prepare the journal entry to record the retirements under the partial goodwill approach. General Journal Credit To record retirement of Decker and Groth. 0 0 0 0 0 0 Capital - Groth To record goodwill prior to retirement of Decker and Groth. Debit 0 0 0 0 0 0 Credit 0 0 0 0 0 0 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: Accounts payable $216,000 Cash Accounts receivable 192,000 Inventory of parts Equipment, net Building, net Land $156,000 Total assets 96,000 216,000 72,000 60,000 Loan payable 96,000 Capital - Decker 120,000 Capital - Groth Capital - Farmer Capital - Wang Capital - Lux 96,000 168,000 18,000 78,000 $792,000 Total liabilities and capital $792,000 All partners agreed that Decker should receive $150,000 for his interest in the business and Groth should receive $120,000. 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. (a) Prepare the journal entry to record the retirements under the bonus method. General Journal Description Capital - Groth Capital - Farmer Capital - Wang Capital - Lux Debit Capital - Groth Description 0 0 0 0 0 0 (b) Prepare the journal entry to record the retirements under the partial goodwill approach. General Journal Credit To record retirement of Decker and Groth. 0 0 0 0 0 0 Capital - Groth To record goodwill prior to retirement of Decker and Groth. Debit 0 0 0 0 0 0 Credit 0 0 0 0 0 0
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Related Book For
Advanced Accounting
ISBN: 978-1934319307
2nd edition
Authors: Susan S. Hamlen, Ronald J. Huefner, James A. Largay III
Posted Date:
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