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PLEASE HELP ME FIGURE OUT WHAT I'M DOING WRONG Steve Reese is a well-known interior designer...

Question:

Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob ODo

PLEASE HELP ME FIGURE OUT WHAT I'M DOING WRONG

Required A Required B Prepare journal entries to record the preceding transactions on the assumption that the bonus (or no re

Required A Required B Prepare journal entries to record the previous transactions on the assumption that the goodwill (or rev

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, 2016, O'Donnell invests a building worth $120,000 and equipment valued at $120,000 as well as $40,000 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 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 2016. Thereafter, each can draw $7,000 annually or 10 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, 2017, Terri Dunn becomes a third partner in this business by contributing $53,000 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 2017 is reported as $90,000. Each partner withdraws the full amount that is allowed. On January 1, 2018, Dunn becomes ill and sells her interest in the partnership (with the consent of the other two partners) to Judy Postner. Postner pays $180,000 directly to Dunn. Net income for 2018 is $150,000 with the partners again taking their full drawing allowance. On January 1, 2019, 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.
Required A Required B Prepare journal entries to record the preceding transactions on the assumption that the bonus (or no revaluatix method is used. Drawings need not be recorded, although the balances should be included in the closing entri no entry is required for a transaction/event, select "No journal entry required in the first account field. Round answers to the nearest dollar amount.) Credit No 1 Date General Journal 01/01/2016 Building Equipment Cash O Donnell, capital Reese, capital Debit 120,000 120.000 40,000 140,000 140,000 2 12/31/2016 36,000 X Reese, capital O Donnell, capital Income summary sea salassos 32,000 4,000 3 01/01/2017 Cash O'Donnell, capital Reese, capital Dunn, capital 53,000 5,000x 20,000 78,000x 16,700 X 8.400 O'Donnell, capital Reese, capital Dunn, capital O'Donnell, drawings Reese, drawings Dunn, drawings 16,700X 8,400x 7,800X 5 12/31/2017 90,000 Income summary O'Donnell, capital Reese, capital Dunn, capital 51,400 23,160X 15,440X 01/01/2018 85.640 X Dunn, capital Postner, capital 85,640X 12/31/2018 170X O'Donnell, capital Reese, capital Postner, capital O'Donnell, drawings Reese, drawings Postner, drawings Saco Sassasasi seseos sodo 20,170X 9,876X 8,564X 12/31/2018 Income summary O Donnell, capital Reese, capital Postner, capital 48,03EX 25,177x 16,789X 01/01/2019 108.940X Postner, capital O'Donnell, capital Reese, capital Cash 119,834x
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 01/01/2016 Building 120,000 Equipment 120,000 Cash 40,000 Goodwill 280,000 O Donnell, capital 280,000 Reese, capital 280,000 2 12/31/2016 Reese, capital O Donnell, capital Income summary 60,000 4,000x 3 01/01/2017 Cash Goodwill Dunn, capital 53,000 131,33X 184,333X 4 12/31/2017 O'Donnell, capital Reese, capital Dunn, capital O'Donnell, drawings Reese, drawings Dunn, drawings 34,000 21,600 X 18,433 x as salas salas Cocos os seseoses 34,000 21,600 X 18,433 X 12/31/2017 80.00 Income summary O'Donnell, capital Reese, capital Dunn, capital 75,800X 2,520% 1,680X 6 01/01/2018 Goodwill O'Donnell, capital Reese, capital Postner, capital 7,813 18,750X 12.500X 01/01/2018 Dunn, capital Postner, capital 180,000 180,000 12/31/2018 34,78 X 23.475X 18.000 O'Donnell, capital Reese, capital Postner, capital O Donnell, drawings Reese, drawings Postner, drawings 34.781X 23,475 X 18,000 12/31/2018 90.000 Income summary O Donnell, capital Reese, capital Postner, capital SS SSos Sacs Soosse 80,648X 5,612X 3,742 x 10 01/01/2019 Goodwill O Donnell, capital Reese, capital Postner, capital 12,167X 29,2017 19,468 01/01/2019 Postner, capital Cash 214,143 x

Answers

Part A

Date

Account titles and explanation

debit

Credit

1/1/16

Building

120000

Equipment

120000

Cash

40000

O'Donnell, Capital

140000

Reese, Capital

140000

12/31/16

Reese, Capital

36000

O'Donnell, Capital (140000*20%)+4000

32000

Income Summary

4000

1/1/17

Cash

53000

O'Donnell, Capital (20%)

5000

Reese, Capital (80%)

20000

Dunn, Capital

78000

12/31/17

O'Donnell, Capital (140000+32000-5000)*10%

16700

Reese, Capital (140000-36000-20000)*10%

8400

Dunn, Capital (78000*10%)

7800

O'Donnell, Drawings

16700

Reese, Drawings

8400

Dunn, Drawings

7800

12/31/17

Income Summary

90000

O'Donnell, Capital

51400

Reese, Capital

23160

Dunn, Capital

15440

1/1/18

Dunn, Capital

85640

Postner, Capital

85640

12/31/18

O'Donnell, Capital (201700*10%)

20170

Reese, Capital (98760*10%)

9876

Postner, Capital (85640*10%)

8564

O'Donnell, Drawings

20170

Reese, Drawings

9876

Postner, Drawings

8564

12/31/18

Income Summary

90000

O'Donnell, Capital

48038

Reese, Capital

25177

Postner, Capital

16785

1/1/19

Postner, Capital (85640-8564+16785)

93861

O'Donnell, Capital (20%)

1877

Reese, Capital (80%)

7509

Cash

103247

Part B

Date

Account titles and explanation

debit

Credit

1/1/16

Building

120000

Equipment

120000

Cash

40000

Goodwill

280000

O'Donnell, Capital

280000

Reese, Capital

280000

12/31/16

Reese, Capital

64000

O'Donnell, Capital

60000

Income Summary

4000

1/1/17

Cash

53000

Goodwill

131333

Dunn, Capital

184333

12/31/17

O'Donnell, Capital (280000+60000)*10%

34000

Reese, Capital (280000-64000)*10%

21600

Dunn, Capital (184333*10%)

18433

O'Donnell, Drawings

34000

Reese, Drawings

21600

Dunn, Drawings

18433

12/31/17

Income Summary

90000

O'Donnell, Capital

75800

Reese, Capital

2520

Dunn, Capital

1680

Date

Account titles and explanation

debit

Credit

12/31/17

O'Donnell, Capital (280000+60000)*10%

34000

Reese, Capital (280000-64000)*10%

21600

Dunn, Capital (184333*10%)

18433

O'Donnell, Drawings

34000

Reese, Drawings

21600

Dunn, Drawings

18433

12/31/17

Income Summary

90000

O'Donnell, Capital

86000

Reese, Capital

2400

Dunn, Capital

1600

1/1/18

Goodwill (180000-167500)/32%

39063

O’Donnell Capital (20%)

7813

Reese, Capital (48%)

18750

Postner, Capital (32%)

12500

1/1/18

Dunn, Capital

180000

Postner, Capital

180000

12/31/18

O'Donnell, Capital

34781

Reese, Capital

23475

Postner, Capital

18000

O'Donnell, Drawings ((340000+7813)*10%)

34781

Reese, Drawings ((216000+18750)*10%)

23475

Postner, Drawings (180000*10%)

18000

12/31/18

Income Summary

90000

O'Donnell, Capital

80646

Reese, Capital

5612

Postner, Capital

3742

1/1/19

Goodwill (194675*10%)/32%

60836

O'Donnell, Capital (20%)

12167

Reese, Capital (48%)

29201

Postner, Capital (32%)

19468

1/1/19

Postner, Capital ((194675*110%)

214143

Cash

214143

Explanation:

Part A

1/1/16 - To record initial investment of assets by partners. Assets recorded at fair value with two equal capital balances

12/31/16 - The allocation plan specifies that O'Donnell will receive 20% in interest [or $28000 based on $140,000 capital balance] plus $4,000 more [since that amount is greater than 15% of the profits from the period]. The remaining $36000 loss is assigned to Reese.)

1/1/17 - New investment by Dunn brings total capital to $312,000 after 2008 loss [$280,000 – $4,000 + $36,000]. Dunn's 20% interest is $78000 [$312,000 × 25%] with the extra $25000 coming from the two original partners [allocated between them according to their profit and loss ratio].

12/31/17 - To close out drawings accounts for the year based on distributing 10% of each partner's beginning capital balances or 7000 whichever is more

Net income distribution

O'Donnell

Reese

Dunn

Interest (140000+32000-5000)*20%

33400

20% of $90000 income

18000

60:40 spilt of remaining $38600 (90000-33400-18000)

Income

23160

15440

Total

51400

23160

15440

Capital Balances as of December 31, 2017:

O'Donnell

Reese

Dunn

Initial 2016 investment

140000

140000

2016 profit allocation

32000

(36000)

Dunn's investment

(5000)

(20000)

78000

2017 drawings

(16700)

(8400)

(7800)

2017 profit allocation

51400

23160

15440

12/31/17 balances

201700

98760

85640

1/1/18 -Reclassification of capital balance to reflect acquisition of Dunn's interest

12/31/18 - To close out drawings accounts for the year based on distributing 10% of each partner's beginning capital balances or 7000 whichever is more.

12/31/18 - To allocate net income for 2018 determined as follows

O'Donnell

Reese

Postner

Interest (20% of $201700 beg. capital)

40340

20% of $150000 income

30000

60:40 split of remaining $79660 (150000-40340-30000)

47796

31864

Totals

70340

47796

31864

1/1/19 - Postner's capital = 93861 (85640-8564+16785).

Extra 9386 (10%*93861) payment is deducted from the two remaining partners' capital accounts in ratio of 20%:80%

O'Donnell, Capital = 20%*9386 =1877

Reese, Capital = 80%*9386= 7509

Part B

1/1/16- Reese is credited with goodwill of $280,000 to match O'Donnell's investment.

12/31/16 - The allocation plan specifies that O'Donnell will receive 20% in interest [or $56000 based on $280,000 capital balance] plus $4,000 more [since that amount is greater than 10% of the profits from the period]. The remaining $64000 loss is assigned to Reese.)

1/1/17

Current capital = total capital by two partners – net loss = 280000+280000-4000 = 556000

$53,000 + Goodwill = 25% (Current Capital + $53,000 + Goodwill)

$53,000 + Goodwill = 25% ($556000 + $53,000 + Goodwill)

$53,000 + Goodwill = $151500 + 0.25 Goodwill

0.75 Goodwill = $98500

Goodwill = $131333

Dunn contributes cash and goodwill.

Net income distribution

O'Donnell

Reese

Dunn

Interest (20% of $(280,000+60000) beginning capital balance)

68000

20% of $90,000 income

18000

60:40 spilt of remaining $4200 (90000-68000-18000)

Income

2400

1600

Total

86000

2400

1600

.

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