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. What are the debits to Reese, capital and O'Donnell, capital on 12/31/2016? No Date General Journal Debit Credit 1 01/01/2018 Building 2 12/31/2016 1 Equipment Cash Reese, capital O'Donnell, capital Reese, capital O'Donnell, capital Income summary 130,000 140.000 60.000 165.000 165.000 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. What are the debits to Reese, capital and O'Donnell, capital on 12/31/2016? No Date General Journal Debit Credit 1 01/01/2018 Building 2 12/31/2016 1 Equipment Cash Reese, capital O'Donnell, capital Reese, capital O'Donnell, capital Income summary 130,000 140.000 60.000 165.000 165.000 6.000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
What are the debits to Reese, capital and O'Donnell, capital on 12/31/2016?
No
Date
General Journal
Debit
1
01/01/2018
Building
Equipment
Cash
2
12/31/2016
1
Reese, capital
O'Donnell, capital
Reese, capital
O'Donnell, capital
Income summary
130,000
140.000
60.000
Credit
165,000
165,000
6.000
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