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 $130,000 and equipment valued at $140,000 as well as $60,000 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 10 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 $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 15 percent of the beginning capital balance for the year, whichever is larger. The partnership reported a net loss of $6,000 during the first year of its operation. On January 1, 2017, Terri Dunn becomes a third partner in this business by contributing $26,000 cash to the partnership. Dunn receives a 20 percent share of the business's capital. What is the JE to record the admittance of Dunn into the partnership using the goodwill (or revaluation) method? No Date General Journal Debit Credit 1 01/01/2016 Building 2 12/31/2016 3 01/01/2017 Equipment Cash Goodwill Reese capital O'Donnell, capital O'Donnell, capital Income summary Reese, capital Cash Goodwill Dunn, capital 130.000 140.000 00.000 330,000 43,000 20,000 330.000 330.000 37.000 6.000
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 $130,000 and equipment valued at $140,000 as well as $60,000 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 10 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 $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 15 percent of the beginning capital balance for the year, whichever is larger. The partnership reported a net loss of $6,000 during the first year of its operation. On January 1, 2017, Terri Dunn becomes a third partner in this business by contributing $26,000 cash to the partnership. Dunn receives a 20 percent share of the business's capital. What is the JE to record the admittance of Dunn into the partnership using the goodwill (or revaluation) method? No Date General Journal Debit Credit 1 01/01/2016 Building 2 12/31/2016 3 01/01/2017 Equipment Cash Goodwill Reese capital O'Donnell, capital O'Donnell, capital Income summary Reese, capital Cash Goodwill Dunn, capital 130.000 140.000 00.000 330,000 43,000 20,000 330.000 330.000 37.000 6.000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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What is the JE on 12/31/2017 to admit Dunn to the partnership?
Transcribed Image Text: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 $130,000 and equipment
valued at $140,000 as well as $60,000 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 10 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 $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 15 percent of the beginning capital balance
for the year, whichever is larger.
The partnership reported a net loss of $6,000 during the first year of its operation. On January 1,
2017, Terri Dunn becomes a third partner in this business by contributing $26,000 cash to the
partnership. Dunn receives a 20 percent share of the business's capital.
What is the JE to record the admittance of Dunn into the partnership using the goodwill (or
revaluation) method?
No
Date
General Journal
Debit
Credit
1
01/01/2016 Building
2
12/31/2016
01/01/2017
3
Equipment
Cash
Goodwill
Reese capital
O'Donnell, capital
O'Donnell, capital
Income summary
Reese, capital
Cash
Goodwill
Dunn, capital
130.000
140.000
00,000
330,000
43,000
20,000
330.000
330.000
37,000
6.000
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