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 80 percent of all profits and losses with the remaining 20 percent assigned to Robbins after interest of 7 percent is given to each partner based on beginning capital balances.

On January 2, 2018, Jeffrey invests $73,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction, 7 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.

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

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

Prince, Capital $ 130,000 Robbins, Capital 120,000

Explanation / Answer

A. Journal Entries:

(Allocation of goodwill to Prince & Robbins in existing Profit sharing ratio)

Working of Goodwill:

Allocation of Goodwill:

3,65,000.00

b. Allocation:

Cash Account Debit 73,000.00 To Goodwill Account 42,000.00 To Jaffery Capital Account 31,000.00 (Goodwill Recorded) Goodwill Account Debit 42,000.00 To Prince Capital 33,600.00 To Robbins Capital     8,400.00

(Allocation of goodwill to Prince & Robbins in existing Profit sharing ratio)

Working of Goodwill:

A Book Value of Existing Partner(capital) 2,50,000.00 B New Investment (Jaffery)      73,000.00 A+B Total Capital 3,23,000.00 C Fair Value* 3,65,000.00 A+B-C Goodwill    -42,000.00 *73000/20%-Jaffery giving 73000 for 20% interest, so capital will be 73000/20%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.