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, Capital $ 140,000 Robbins, Capital 130,000 Prince is allocated 70 percent of all profits and losses with the remaining 30 percent assigned to Robbins after the interest of 9 percent is given to each partner based on beginning capital balances. On January 2, 2018, Jeffrey invests $79,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction, 9 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 $29,000.

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.

Explanation / Answer

Calculation of goodwill = Total Capital based on 20% brought in by partner Jeffery - Actual Capital = [79,000 / 20%] - [140,000 + 130,0000 + 79,000] = 395,000 - 349,000 = $46,000

Date Account Titles and Explanation Debit Credit Jan. 2, 2018 Cash 79000 Goodwill 46000 Prince, Capital ($46000 x 70%) 32200 Robbins, Capital ($46000 x 30%) 13800 Jeffery, Capital 79000 (To record goodwill on admission of Jeffery)

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