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 local merchant, to contribute the capital to form a partnership. On January 1, 2019, O'Donnell invests a building worth $62,000 and equipment valued at $36,000 as well as $32,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O'Donnell to join this partnership, Reese draws up the following profit and loss agreement: O'Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year. O'Donnell will also have added to his capital account 20 percent of partnership income each year (without regard for the preceding interest figure) or $4,000, whichever is larger. All remaining income is credited to Reese. Neither partner is allowed to withdraw funds from the partnership during 2019. Thereafter, each can draw $6,000 annually or 10 percent of the beginning capital balance for the year, whichever is larger. The partnership reported a net loss of $10,000 during the first year of its operation. On January 1, 2020, Terri Dunn becomes a third partner in this business by contributing $25,000 cash to the partnership. Dunn receives a 25 percent share of the business's capital. The profit and loss agreement is altered as follows: O'Donnell is still entitled to (1) interest on his beginning capital balance as well as (2) the share of partnership income just specified. Any remaining profit or loss will be split on a 6:4 basis between Reese and Dunn, respectively. Partnership income for 2020 is reported as $62,000. Each partner withdraws the full amount that is allowed. On January 1, 2021, Dunn becomes ill and sells her interest in the partnership (with the consent of the other two partners) to Judy Postner. Postner pays $95,000 directly to Dunn. Net income for 2021 is $66,000 with the partners again taking their full drawing allowance. On January 1, 2022, 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 entitled to receive cash in an amount equal to the recorded capital balance at that time plus 10 percent. a. Prepare journal entries 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 entries. b. Prepare journal entries to record the previous 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 entries. Complete this question by entering your answers in the tabs below. Record the initial investment of assets by partners. Note: Enter debits before credits. Credit Date General Journal 01/01/2019 Building Equipment Cash O'Donnell, capital Reese, capital Debit 62,000 36,000 32,000 65,000 65,000 Record the distribution of net income to partners. Note: Enter debits before credits. Credit Debit 20,500 Date General Journal 12/31/2019 Reese, capital O'Donnell, capital Income summary 10,500 10,000 Record the admittance of Dunn into the partnership. Note: Enter debits before credits. Debit Credit Date General Journal 01/01/2020 Cash O'Donnell, capital Reese, capital Dunn, capital Record entry to close drawings accounts. Note: Enter debits before credits. Debit Credit Date General Journal 12/31/2020 O'Donnell, capital Reese, capital Dunn, capital O'Donnell, drawings Reese, drawings Dunn, drawings Record the distribution of net income to partners. Note: Enter debits before credits. Debit Credit Date General Journal 12/31/2020 Income summary O'Donnell, capital Reese, capital Dunn, capital Record the admittance of Postner into the partnership. Note: Enter debits before credits. General Journal Debit Credit Date 01/01/2021 (Dunn, capital Postner, capital Record entry to close drawings accounts. Note: Enter debits before credits. Debit Credit Date General Journal 12/31/2021 O'Donnell, capital Reese, capital Postner, capital O'Donnell, drawings Reese, drawings Postner, drawings Record the distribution of net income to partners. Note: Enter debits before credits. Debit Credit Date General Journal 12/31/2021 Income summary O'Donnell, capital Reese, capital Postner, capital - Record the cash paid to the withdrawing partner. Note: Enter debits before credits. Debit Credit Date General Journal 01/01/2022 Postner, capital O'Donnell, capital Reese, capital Cash 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 local merchant, to contribute the capital to form a partnership. On January 1, 2019, O'Donnell invests a building worth $62,000 and equipment valued at $36,000 as well as $32,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O'Donnell to join this partnership, Reese draws up the following profit and loss agreement: O'Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year. O'Donnell will also have added to his capital account 20 percent of partnership income each year (without regard for the preceding interest figure) or $4,000, whichever is larger. All remaining income is credited to Reese. Neither partner is allowed to withdraw funds from the partnership during 2019. Thereafter, each can draw $6,000 annually or 10 percent of the beginning capital balance for the year, whichever is larger. The partnership reported a net loss of $10,000 during the first year of its operation. On January 1, 2020, Terri Dunn becomes a third partner in this business by contributing $25,000 cash to the partnership. Dunn receives a 25 percent share of the business's capital. The profit and loss agreement is altered as follows: O'Donnell is still entitled to (1) interest on his beginning capital balance as well as (2) the share of partnership income just specified. Any remaining profit or loss will be split on a 6:4 basis between Reese and Dunn, respectively. Partnership income for 2020 is reported as $62,000. Each partner withdraws the full amount that is allowed. On January 1, 2021, Dunn becomes ill and sells her interest in the partnership (with the consent of the other two partners) to Judy Postner. Postner pays $95,000 directly to Dunn. Net income for 2021 is $66,000 with the partners again taking their full drawing allowance. On January 1, 2022, 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 entitled to receive cash in an amount equal to the recorded capital balance at that time plus 10 percent. a. Prepare journal entries 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 entries. b. Prepare journal entries to record the previous 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 entries. Complete this question by entering your answers in the tabs below. Record the initial investment of assets by partners. Note: Enter debits before credits. Credit Date General Journal 01/01/2019 Building Equipment Cash O'Donnell, capital Reese, capital Debit 62,000 36,000 32,000 65,000 65,000 Record the distribution of net income to partners. Note: Enter debits before credits. Credit Debit 20,500 Date General Journal 12/31/2019 Reese, capital O'Donnell, capital Income summary 10,500 10,000 Record the admittance of Dunn into the partnership. Note: Enter debits before credits. Debit Credit Date General Journal 01/01/2020 Cash O'Donnell, capital Reese, capital Dunn, capital Record entry to close drawings accounts. Note: Enter debits before credits. Debit Credit Date General Journal 12/31/2020 O'Donnell, capital Reese, capital Dunn, capital O'Donnell, drawings Reese, drawings Dunn, drawings Record the distribution of net income to partners. Note: Enter debits before credits. Debit Credit Date General Journal 12/31/2020 Income summary O'Donnell, capital Reese, capital Dunn, capital Record the admittance of Postner into the partnership. Note: Enter debits before credits. General Journal Debit Credit Date 01/01/2021 (Dunn, capital Postner, capital Record entry to close drawings accounts. Note: Enter debits before credits. Debit Credit Date General Journal 12/31/2021 O'Donnell, capital Reese, capital Postner, capital O'Donnell, drawings Reese, drawings Postner, drawings Record the distribution of net income to partners. Note: Enter debits before credits. Debit Credit Date General Journal 12/31/2021 Income summary O'Donnell, capital Reese, capital Postner, capital - Record the cash paid to the withdrawing partner. Note: Enter debits before credits. Debit Credit Date General Journal 01/01/2022 Postner, capital O'Donnell, capital Reese, capital Cash