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 $60,000 and equipment valued at $32,000 as well as $28,000 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 20 percent of the beginning capital balance for the year. O'Donnell will also have added to his capital account 10 percent of partnership income each year (without regard for the preceding interest figure) or $8,000, 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 $5,000 annually or 15 percent of the beginning capital balance for the year, whichever is larger. The partnership reported a net loss of $9,000 during the first year of its operation. On January 1, 2020, Terri Dunn becomes a third partner in this business by contributing $10,000 cash to the partnership. Dunn receives a 20 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 5:5 basis between Reese and Dunn, respectively. Partnership income for 2020 is reported as $85,000. 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 $80,000 directly to Dunn. Net income for 2021 is $65,000 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. No Date General Journal Debit Credit 1 01/01/2019 Building Equipment Cash O'Donnell, capital Reese, capital 60,000 32,000 28,000 60,000 60,000 2 12/31/2019 29,000 Reese, capital O'Donnell, capital Income summary 20,000 9,000 3 01/01/2020 Cash O'Donnell, capital Reese, capital Dunn, capital 10,000 1,420 12,780 24,200 4 12/31/2020 11,787 5,000 5,000 O'Donnell, capital Reese, capital Dunn, capital O'Donnell, drawings Reese, drawings Dunn, drawings 11,787 5,000 5,000 5 12/31/2020 85,000 24,216 Income summary O'Donnell, capital Reese, capital Dunn, capital 30,392 30,392 6 01/01/2021 49,592 Dunn, capital Postner, capital 49,592 7 12/31/2021 13,651 6,542 7,439 O'Donnell, capital Reese, capital Postner, capital O'Donnell, drawings Reese, drawings Postner, drawings 13,651 6,542 OOO 7,439 8 12/31/2021 65,000 0 X Income summary O'Donnell, capital Reese, capital Postner, capital 0 X 0X 9 01/01/2022 0 X 0 X Postner, capital O'Donnell, capital Reese, capital Cash OX 0X Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest dollar amount.) Show less No Date General Journal Debit Credit 1 01/01/2019 Building Equipment Cash 60,000 32,000 28,000 120,000 Goodwill O'Donnell, capital Reese, capital 120,000 120,000 2 12/31/2019 41,000 Reese, capital O'Donnell, capital Income summary 32,000 9,000 3 01/01/2020 Cash 10,000 Goodwill Dunn, capital 4 12/31/2020 O'Donnell, capital Reese, capital Dunn, capital O'Donnell, drawings Reese, drawings Dunn, drawings 5 12/31/2020 Income summary O'Donnell, capital Reese, capital Dunn, capital 6 01/01/2021 Goodwill O'Donnell, capital Reese, capital Dunn, capital 7 01/01/2021 Dunn, capital Postner, capital 8 12/31/2021 O'Donnell, capital Reese, capital Postner, capital O'Donnell, drawings Reese, drawings Postner, drawings 9 12/31/2021 Income summary O'Donnell, capital Reese, capital Postner, capital 10 01/01/2022 Goodwill O'Donnell, capital Reese, capital Postner, capital 11 01/01/2022 Postner, 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 $60,000 and equipment valued at $32,000 as well as $28,000 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 20 percent of the beginning capital balance for the year. O'Donnell will also have added to his capital account 10 percent of partnership income each year (without regard for the preceding interest figure) or $8,000, 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 $5,000 annually or 15 percent of the beginning capital balance for the year, whichever is larger. The partnership reported a net loss of $9,000 during the first year of its operation. On January 1, 2020, Terri Dunn becomes a third partner in this business by contributing $10,000 cash to the partnership. Dunn receives a 20 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 5:5 basis between Reese and Dunn, respectively. Partnership income for 2020 is reported as $85,000. 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 $80,000 directly to Dunn. Net income for 2021 is $65,000 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. No Date General Journal Debit Credit 1 01/01/2019 Building Equipment Cash O'Donnell, capital Reese, capital 60,000 32,000 28,000 60,000 60,000 2 12/31/2019 29,000 Reese, capital O'Donnell, capital Income summary 20,000 9,000 3 01/01/2020 Cash O'Donnell, capital Reese, capital Dunn, capital 10,000 1,420 12,780 24,200 4 12/31/2020 11,787 5,000 5,000 O'Donnell, capital Reese, capital Dunn, capital O'Donnell, drawings Reese, drawings Dunn, drawings 11,787 5,000 5,000 5 12/31/2020 85,000 24,216 Income summary O'Donnell, capital Reese, capital Dunn, capital 30,392 30,392 6 01/01/2021 49,592 Dunn, capital Postner, capital 49,592 7 12/31/2021 13,651 6,542 7,439 O'Donnell, capital Reese, capital Postner, capital O'Donnell, drawings Reese, drawings Postner, drawings 13,651 6,542 OOO 7,439 8 12/31/2021 65,000 0 X Income summary O'Donnell, capital Reese, capital Postner, capital 0 X 0X 9 01/01/2022 0 X 0 X Postner, capital O'Donnell, capital Reese, capital Cash OX 0X Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest dollar amount.) Show less No Date General Journal Debit Credit 1 01/01/2019 Building Equipment Cash 60,000 32,000 28,000 120,000 Goodwill O'Donnell, capital Reese, capital 120,000 120,000 2 12/31/2019 41,000 Reese, capital O'Donnell, capital Income summary 32,000 9,000 3 01/01/2020 Cash 10,000 Goodwill Dunn, capital 4 12/31/2020 O'Donnell, capital Reese, capital Dunn, capital O'Donnell, drawings Reese, drawings Dunn, drawings 5 12/31/2020 Income summary O'Donnell, capital Reese, capital Dunn, capital 6 01/01/2021 Goodwill O'Donnell, capital Reese, capital Dunn, capital 7 01/01/2021 Dunn, capital Postner, capital 8 12/31/2021 O'Donnell, capital Reese, capital Postner, capital O'Donnell, drawings Reese, drawings Postner, drawings 9 12/31/2021 Income summary O'Donnell, capital Reese, capital Postner, capital 10 01/01/2022 Goodwill O'Donnell, capital Reese, capital Postner, capital 11 01/01/2022 Postner, capital Cash