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

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 $8.000 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.
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