Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Steve Reese is a well - known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O'Donnell, a
Steve Reese is a wellknown interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O'Donnell, a
local merchant, to contribute the capital to form a partnership. On January O'Donnell Invests a bullding worth $ and
equipment valued at $ as well as $ in cash. Although Reese makes no tanglble contributlon to the parthership, he will
operate the business and be an equal partner In the beginning capital balances.
To entice O'Donnell to join this parthership, Reese draws up the following profit and loss agreement:
O'Donnell will be credited annually with Interest equal to percent of the beginning capital balance for the year.
O'Donnell will also have added to his capital account percent of partnership income each year without regard for the preceding
Interest figure or $ whichever is larger. All remaining income is credited to Reese.
Nelther partner is allowed to withdraw funds from the partnership during Thereafter, each can draw $ annually or
percent of the beginning capital balance for the year, whichever is larger.
The partnership reported a net loss of $ during the first year of its operation. On January Terri Dunn becomes a third
parther in this business by contributing $ cash to the partnership. Dunn recelves a percent share of the business's capital. The
profit and loss agreement is altered as follows:
O'Donnell is still entitled to interest on his beginning capital balance as well as the share of partnership income just specified.
Any remalning profit or loss will be split on a : basis between Reese and Dunn, respectlvely.
Parthership income for is reported as $ Each partner withdraws the full amount that is allowed.
On January Dunn becomes Ill and sells her interest In the partnership with the consent of the other two partners to Judy
Postner. Postner pays $ directly to Dunn. Net Income for is $ with the parthers again taking thelr full drawing
allowance.
On January Postner withdraws from the business for personal reasons. The articles of partnership state that any partner may
leave the partnership at any time and is entitied to recelve cash in an amount equal to the recorded capital balance at that time plus
percent.
Required:
a Prepare journal entrles to record the preceding transactions on the assumption that the bonus or no revaluation method is used.
Drawings need not be recorded, although the balances should be included in the closing entrles.
b Prepare journal entrles to record the prevlous transactions on the assumption that the goodwill or revaluation method is used.
Drawings need not be recorded, although the balances should be included in the closing entrles.
Please answer the blank and incorrect. The green checkmarks mean that entry is correct.
Thank you
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started