The Prince-Robbins partnership has the following capital account balances on Jan

Question

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

Prince is allocated 60 percent of all profits and losses with the remaining 40 percent assigned to Robbins after interest of 10 percent is given to each partner based on beginning capital balances.

On January 2, 2018, Jeffrey invests $76,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction, 10 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 $36,000.

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

Determine the allocation of income at the end of 2018.

Prince, Capital $ 150,000 Robbins, Capital 110,000

Explanation / Answer

Calculation of goodwill = Total Capital based on 20% brought in by partner Jeffery - Actual Capital = [76,000 / 20%] - [150,000 + 110,0000 + 76,000] = 380,000 - 336,000 = $44,000

Date Account Titles and Explanation Debit Credit Jan. 2, 2018 Cash 76000 Goodwill 44000 Prince, Capital ($44000 x 60%) 26400 Robbins, Capital ($44000 x 40%) 17600 Jeffery, Capital 76000 (To record goodwill on admission of Jeffery)

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