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 $156,000 Accounts payable $216,000 Accounts receivable 192,000 Loan payable 96,000 Inventory of parts 96,000 Capital - Decker 120,000 Equipment, net 216,000 Capital - Groth 96,000 Building, net 72,000 Capital - Farmer 168,000 Land 60,000 Capital - Wang 18,000 Capital - Lux 78,000 Total assets $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. General Journal Description Debit Credit Answer Answer Answer Capital - Groth Answer Answer Capital - Farmer Answer Answer Capital - Wang Answer Answer Capital - Lux Answer Answer Answer Answer Answer (b) Prepare the journal entry to record the retirements under the partial goodwill approach. General Journal Description Debit Credit Answer Answer Answer Answer Answer Answer Capital - Groth Answer Answer To record goodwill prior to retirement of Decker and Groth. Answer Answer Answer Capital - Groth Answer Answer Answer Answer Answer To record retirement of Decker and Groth.
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
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
| Cash | $156,000 | Accounts payable | $216,000 |
| 192,000 | Loan payable | 96,000 | |
| Inventory of parts | 96,000 | Capital - Decker | 120,000 |
| Equipment, net | 216,000 | Capital - Groth | 96,000 |
| Building, net | 72,000 | Capital - Farmer | 168,000 |
| Land | 60,000 | Capital - Wang | 18,000 |
| Capital - Lux | 78,000 | ||
| Total assets | $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
(a) Prepare the
| General Journal | ||
|---|---|---|
| Description | Debit | Credit |
| Answer | Answer
|
Answer
|
| Capital - Groth | Answer
|
Answer
|
| Capital - Farmer | Answer
|
Answer
|
| Capital - Wang | Answer
|
Answer
|
| Capital - Lux | Answer
|
Answer
|
| Answer | Answer
|
Answer
|
(b) Prepare the journal entry to record the retirements under the partial goodwill approach.
| General Journal | ||
|---|---|---|
| Description | Debit | Credit |
| Answer | Answer
|
Answer
|
| Answer | Answer
|
Answer
|
| Capital - Groth | Answer
|
Answer
|
| To record goodwill prior to retirement of Decker and Groth. | ||
| Answer | Answer
|
Answer
|
| Capital - Groth | Answer
|
Answer
|
| Answer | Answer
|
Answer
|
| To record retirement of Decker and Groth. |
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
