Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to

Question

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 $110,000 and equipment valued at $64,000 as well as $46,000 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 $8,000, 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 $8,000 annually or 10 percent of the beginning capital balance for the year, whichever is larger The partnership reported a net loss of $11,000 durng the first year of its operation. On January 1, 2017, Terri Dunn becomes a third partner in this business by contributing $45,000 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 $72,000. 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 $140,000 directly to Dunn. Net income for 2018 is $100,000 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.

Explanation / Answer

2.

1.) Date General Journal Debit Credit 01.01.2016 Building A/c Dr     110,000 Equipment A/C Dr        64,000 Cash A/C Dr        46,000 To Steve Resse     110,000 To Rob O Donnell     110,000 Date General Journal Debit Credit 31.12.2016 Interest on Capital A/C Dr        22,000 Contribution A/C Dr          8,000 To Rob O Donnell        52,000 31.12.2016 Steve Resse A/C Dr 22000 Rob O Donnell A/C Dr 22000 To Cash 44000 Date General Journal Debit Credit 01.01.2017 Cash A/C Dr        45,000 To Teri Dunn        45,000 Date General Journal Debit Credit 31.12.2017 Interest on Capital A/C Dr        22,000 Contribution A/C Dr        10,000 To Rob O Donnell        32,000 P & L A/c Dr        40,000 To Steve Resse A/C        24,000 To Teri Dunn        16,000 31.12.2017 Steve Resse A/C Dr 24000 Rob O Donnell A/C Dr 32000 Teri Dunn A/C Dr 16000 To Cash 72000 Date General Journal Debit Credit 01.01.2018 Teri Dunn A/C Dr        45,000 Steve Resse A/C Dr        11,625 Rob O Donnell A/C Dr        11,625 To Judy Postner A/c        68,250 Date General Journal Debit Credit 31.12.2018 Interest on Capital A/C Dr        22,000 Contribution A/C Dr        20,000 To Rob O Donnell        42,000 P & L A/c Dr        58,000 To Steve Resse A/C        34,800 To Teri Dunn        23,200 31.12.2018 Steve Resse A/C Dr 34800 Rob O Donnell A/C Dr 23200 Teri Dunn A/C Dr 42000 To Cash 100000 Date General Journal Debit Credit 01.01.2019 Teri Dunn A/C Dr        68,250 Steve Resse A/C Dr          3,413 Rob O Donnell A/C Dr          3,413 To Cash A/c        75,075

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