Steve Reese is a well$-$khown intenor designer in Fort Worth. Texas. He wans to start his own busness and convinces Rob ODonnell, o

equipment valued at $$40,000$ as well as $$38,000$ in cach. Although Reese makes no tanglble contribution to the partnership, he will

operate the business and be an equal partner in the beginning captal balances.

To ence ODonnell to join this parnershia. Reese craws up the followng profin and loss agreement

ODonnell will be credited annualy with interest equal to $20$ percent of the beginning copital balonce for the yeor

ODonnell will also have added to his capital account $10$ percent of partnership income each year $($without regard for the preceding

Imterest figure$)$ or $$4,000,$ whichever is iarger. All remaining income is credited to Reese.

Neither portener is allowed to wathdraw funds from the partnership during $2022.$ Thereafter, each can draw $$8\mathrm{.}000$ annually or $15$

percent of the beginning caplital balance for the year, whichever is larger.

The partnershlp reported a net loss of $$7,000$ during the first year of its operation. On January $1,2023,$ Terrl Dunn becomes o third

paroner in this business by contribuong $$12,000$ cash to the partherghip. Dunn recelves a $20$ percent share of the business's capital.

The profit and loss sgreemens is altered as follows:

ODonnell is ssill entilied to $(1)$ interest on his begining capltal balance as well as $(2)$ the share of parthership income just specifed.

Any remaing profit or loss will be spirt on a $6$:$4$ basis benween Reese and Dunn, respectively.

Portership income for $2023$ is reported as $$72,000.$ Ebch partner wridraws the full amount thot is ollowed.

On January $1,2024,$ Dunn becomes ill and sells her interest in the partnership $($With the consent of the other two parthers$)$ to Judy

Potiner. Poster pays $$90,000$ directly to Dunn. Net income for $2024$ is $$7,000$ with the parthers sgain taking their full drawing

allowince

On January $1,2025.$ Postner whichaws from the business for personal reasons. The artcles of partnership state thas any portner moy

lesve the partnership at any time and is entitied to recelve cash in an amount equal to the recorded capital bsiance at that time plus $10$

percent.

Required:

a$.$ Prepare journal entres to record the preceding transactions on the assumpton that the bonus $($or no revaluation$)$ method is used.

Drawings need not be recorded, although the balances should be included in the closing entries.

b$.$ Prepare journal entries to record the previous transactions on the assumpsion that the goodwill $($or revaluation$)$ method is used.

Drawngs need not be recorded, although the balances should be included in the closing emrles.