Prepare journal entries to record the preceding transactions on the assumption t
ID: 2529838 • Letter: P
Question
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.
1.Journal entry worksheet
2.Record the capital allocation to O'Donnell and loss to Reese capital.
3.Record the cash received from new partner.
4.Record entry to close drawings accounts.
5.Record the distribution of net income to partners.
6.Record the reclassification of Dunn interest after acquisition.
7.Record entry to close drawings accounts.
8.Record the distribution of net income to partners.
9.Record the cash paid to partners.
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.
1.Journal entry worksheet
2.Record the capital allocation to O'Donnell and loss to Reese capital.
3.Record the cash received from new partner.
4.Record entry to close drawings accounts.
5.Record the distribution of net income to partners.
6.Record the reclassification of Dunn interest after acquisition.
7.Record entry to close drawings accounts.
8.Record the distribution of net income to partners.
9.Record the cash paid to partners.
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, 2013, O'Donnell invests a building worth $124,000 and equipment valued at $128,000 as well as $48,000 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 $6,000 whichever is larger. All remaining income is credited to Reese Neither partner is allowed to withdraw funds from the partnership during 2013. Thereafter, each can draw $7,000 annually or 15 percent of the beginning capital balance for the year, whichever is larger. The partnership reported a net loss of $11,000 during the first year of its operation. On January 1, 2014, Terri Dunn becomes a third partner in this business by contributing $19,000 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 2014 is reported as $94,000. Each partner withdraws the full amount that is allowed On January 1, 2015, Dunn becomes ill and sells her interest in the partnership (with the consent of the other two partners) to Judy Postner. Postner pays $145,000 directly to Dunn. Net income for 2015 is $94,000 with the partners again taking their full drawing allowance On January 1, 2016, 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.Explanation / Answer
Date General Journal Debit Credit 01 January 2013 Building 1,24,000 Equipment 1,28,000 Cash 48,000 To O Donnell, Capital 1,50,000 To Reese, Capital 1,50,000 31 December 2013 Reese, Capital 47,000 To O Donnell, Capital 36,000 Income Summary 11,000 01 January 2014 Cash 19,000 O Donnell, Capital 3,080 Reese, Capital 27,720 To Dunn Capital 49,800 31 December 2014 O Donnell, Capital 27,438 Reese, Capital 7,000 Dunn Capital 7,000 O Donnell, drawings 27,438 Reese, drawings 7,000 Dunn drawings 7,000 31 December 2014 Income Summary 94,000 O Donnell, Capital 45,984 Reese, Capital 24,008 Dunn Capital 24,008 01 January 2015 Dunn Capital 66,808 Postner Captial 66,808 31 December 2015 O Donnell, Capital 9,680 Reese, Capital 13,843 Postner Captial 10,021 O Donnell, drawings 9,680 Reese, drawings 13,843 Postner drawings 10,021 31 December 2015 Income Summary 94,000 O Donnell, Capital 9,400 Reese, Capital 35,847 Postner Captial 35,847 01 January 2016 Postner Captial 92,634 O Donnell, Capital 926 Reese, Capital 8,337 Cash 1,01,897 31 December 2013 (The allocation plan specifies that O'Donnell receives 20% in interest [or $30,000 based on $150,000 capital balance] plus $6,000 more [Because that amount exceeds 10% of the profits from the period]. The remaining $47,000 loss is assigned to Reese.) 01 January 2014 O'Donnell, Capital (10%) = $3,080 Reese, Capital (90%) = $27,720 (New investment by Dunn brings total capital to $308,000 after 2013 loss [$150,000 - $11,000 + $19,000]. Dunn's 20% interest(alllocated between them according to their profit and loss ratio].) 31 December 2014 (To close out drawings accounts for the year based on distributing 15% of each partner's beginning capital balances [after adjustment for Dunn's investment] or $7,000 whichever is greater. O'Donnell's capital is $78,580 [$150,000 + $36,000 - $3080]) 31 December 2014 (To allocate $94,000 income figure for 2014 as determined below.)