Problem $14-31($Static$)($LO $14-2,14-3,14-5,14-6,14-8,14-10)$

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 $$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 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 $15$ 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 $$5,000$ annually or $20$

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 $$15,000$ 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 $6$:$4$ basis between Reese and Dunn, respectively.

Partnership income for $2020$ is reported as $$44,000.$ 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 $$46,000$ directly to Dunn. Net income for $2021$ is $$61,000$ 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.

$1.$ record the initial investment of assets by partners

$2.$ Record the distribution of net income to partners

$3.$ Record the admittance of Dunn into the partnership

$4.$ Record entry to close drawings accounts

$5.$ Record the distribution of net income to partners

$6.$ Record the admittance of Postner into the partnership

$7.$ Record entry to close drawings accounts

$8.$ Record the distribution of net income to partners

$9.$ Record the cash paid to the withdrawing partner

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.

$1.$ Record the initial Investment of assets by partners

$2.$ Record the distribution of net income to partners

$3.$ Record the admittance of Dunn into the partnership

$4.$ Record entry to close drawings accounts

$5.$ Record the distribution of net income to partners

$6.$ Record the goodwill indicated by the purchase of Dunn's Interest

$7.$ Record the admittance of Postner into the partnership

$8.$ Record entry to close drawings accounts

$9.$ Record the distribution of net income to partners

$10.$ Record the goodwill indicated by the withdrawal of Postner

$11.$ Record the final distribution to Postner