I need help with how to complete the problem from the textbookAdvanced Accounting 12e by Hoyle. It is problem 31 from chapter14.
Steve Reese is a well-known interior designer in Fort Worth,Texas. He wants to start his own business and convinces RobOâDonnell, a local merchant, to contribute the capital to form apartnership. On January 1, 2013, OâDonnell invests a building worth$52,000 and equipment valued at $16,000 as well as $12,000 in cash.Although Reese makes no tangible contribution to the partnership,he will operate the business and be an equal partner in thebeginning capital balances.
To entice OâDonnell to join this partnership, Reese draws up thefollowing profit and loss agreement:
⢠OâDonnell will be credited annually with interest equal to 20percent of the beginning capital balance for the year.
⢠OâDonnell will also have added to his capital account 15percent of partnership income each year (without regard for thepreceding interest figure) or $4,000, whichever is larger. Allremaining income is credited to Reese.
⢠Neither partner is allowed to withdraw funds from thepartnership during 2013. Thereafter, each can draw $5,000 annuallyor 20 percent of the beginning capital balance for the year,whichever is larger. The partnership reported a net loss of $10,000during the first year of its operation.
On January 1, 2014, Terri Dunn becomes a third partner in thisbusiness by contributing $15,000 cash to the partnership. Dunnreceives a 20 percent share of the businessâs capital. The profitand loss agreement is altered as follows:
⢠OâDonnell is still entitled to (1) interest on his beginningcapital balance as well as (2) the share of partnership income justspecified. ⢠Any remaining profit or loss will be split on a 6:4basis between Reese and Dunn, respectively.
Partnership income for 2014 is reported as $44,000. Each partnerwithdraws the full amount that is allowed.
On January 1, 2015, Dunn becomes ill and sells her interest inthe partnership (with the consent of the other two partners) toJudy Postner. Postner pays $46,000 directly to Dunn. Net income for2015 is $61,000 with the partners again taking their full drawingallowance.
On January 1, 2016, Postner withdraws from the business forpersonal reasons. The articles of partnership state that anypartner may leave the partnership at any time and is entitled toreceive cash in an amount equal to the recorded capital balance atthat time plus 10 percent.
a. Prepare journal entries to record the preceding transactionson the assumption that the bonus (or no revaluation) method isused. Drawings need not be recorded, although the balances shouldbe included in the closing entries.
b. Prepare journal entries to record the previous transactionson the assumption that the goodwill (or revaluation) method isused. Drawings need not be recorded, although the balances shouldbe included in the closing entries.
I need help with how to complete the problem from the textbookAdvanced Accounting 12e by Hoyle. It is problem 31 from chapter14.
Steve Reese is a well-known interior designer in Fort Worth,Texas. He wants to start his own business and convinces RobOâDonnell, a local merchant, to contribute the capital to form apartnership. On January 1, 2013, OâDonnell invests a building worth$52,000 and equipment valued at $16,000 as well as $12,000 in cash.Although Reese makes no tangible contribution to the partnership,he will operate the business and be an equal partner in thebeginning capital balances.
To entice OâDonnell to join this partnership, Reese draws up thefollowing profit and loss agreement:
⢠OâDonnell will be credited annually with interest equal to 20percent of the beginning capital balance for the year.
⢠OâDonnell will also have added to his capital account 15percent of partnership income each year (without regard for thepreceding interest figure) or $4,000, whichever is larger. Allremaining income is credited to Reese.
⢠Neither partner is allowed to withdraw funds from thepartnership during 2013. Thereafter, each can draw $5,000 annuallyor 20 percent of the beginning capital balance for the year,whichever is larger. The partnership reported a net loss of $10,000during the first year of its operation.
On January 1, 2014, Terri Dunn becomes a third partner in thisbusiness by contributing $15,000 cash to the partnership. Dunnreceives a 20 percent share of the businessâs capital. The profitand loss agreement is altered as follows:
⢠OâDonnell is still entitled to (1) interest on his beginningcapital balance as well as (2) the share of partnership income justspecified. ⢠Any remaining profit or loss will be split on a 6:4basis between Reese and Dunn, respectively.
Partnership income for 2014 is reported as $44,000. Each partnerwithdraws the full amount that is allowed.
On January 1, 2015, Dunn becomes ill and sells her interest inthe partnership (with the consent of the other two partners) toJudy Postner. Postner pays $46,000 directly to Dunn. Net income for2015 is $61,000 with the partners again taking their full drawingallowance.
On January 1, 2016, Postner withdraws from the business forpersonal reasons. The articles of partnership state that anypartner may leave the partnership at any time and is entitled toreceive cash in an amount equal to the recorded capital balance atthat time plus 10 percent.
a. Prepare journal entries to record the preceding transactionson the assumption that the bonus (or no revaluation) method isused. Drawings need not be recorded, although the balances shouldbe included in the closing entries.
b. Prepare journal entries to record the previous transactionson the assumption that the goodwill (or revaluation) method isused. Drawings need not be recorded, although the balances shouldbe included in the closing entries.
