Question

The Prince-Robbins partnership has the following capital account balances on January 1, 2018:

Prince, Capital	$	110,000
Robbins, Capital		100,000

Prince is allocated 70 percent of all profits and losses with the remaining 30 percent assigned to Robbins after interest of 8 percent is given to each partner based on beginning capital balances.

On January 2, 2018, Jeffrey invests $61,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction, 8 percent interest is still to go to each partner. Profits and losses will then be split as follows: Prince (50 percent), Robbins (30 percent), and Jeffrey (20 percent). In 2018, the partnership reports a net income of $23,000.

1. Prepare the journal entry to record Jeffrey’s entrance into the partnership on January 2, 2018.

2. Determine the allocation of income at the end of 2018.

Answer 1

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Solution: Preworking: Recognization of goodwill: Total Capital Represents Less: Actual capital Goodwill for old partners (61000/20%) (110000+100000+61000) 305000 271000 34000 a) Naming convention and format are not available can be slightly different per question requirement: Credit Date Jan.01 $ $ Debit 61,000 34,000 Journal entry Account title and explanation Cash Goodwill Prince, Capital (34000*70%) Robbins, Capital (34000*30%) Jeffery's Capital (To record the admission of new partner) $ $ $ 23,800 10,200 61,000 Answers are highlighted in yellow: 133800 110200 $ 61,000 b) Prince Robbins Jeffrey Updated Capital Allocation of net income: Particulars Net Income Interest - 8% Remaing loss (1400/10) *5;3;2 Total Allocation of net income $ $ $ 10,704 -700 10,004 $ $ $ 8,816 $ -420 $ 8,396 $ 4,880 -280 4,600 $ $ $ $ Total 23,000 -24,400 1,400 -