Question

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

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

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

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.

  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.

Homework Answers

Answer #1

Step 1 :- Calculate total capital after new investment:

Total capital = $150000 + $110000 + $76000

= $ 336000

Implied value of the business based on new investment:

Implied value = $76000/20%

=$380000

Step 2 :- calculation of goodwill:-

Goodwil = $380000 - $336000

= $44000

Offsetting allocation to the original two partners based on their profit and loss ratio:

Prince = $26400 (60%)

Robbin = $17600 (40%)

A) Journal entries:-

Goodwill. $44000

Prince capital $26400

Robbin capital. $17600

B) Allocation of income at the end of 2018:-

​​​​​​

Title Prince Robbins Jeffery Total
Net income $36000
Interest $17640 $12760 $7600 (10%of 76000)

$38000

($2000)

Remainder to allocate (5:3:2) $1000 $600 $400 $2000
Total Allocation $16640 $12160 $7200 $0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Prince-Robbins partnership has the following capital account balances on January 1, 2018: Prince, Capital $...
The Prince-Robbins partnership has the following capital account balances on January 1, 2018: Prince, Capital $ 155,000 Robbins, Capital 145,000 Prince is allocated 70 percent of all profits and losses with the remaining 30 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 $88,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction,...
The Prince-Robbins partnership has the following capital account balances on January 1, 2018: Prince, Capital $...
The Prince-Robbins partnership has the following capital account balances on January 1, 2018: Prince, Capital $ 50,000 Robbins, Capital 40,000 Prince is allocated 70 percent of all profits and losses with the remaining 30 percent assigned to Robbins after interest of 6 percent is given to each partner based on beginning capital balances. On January 2, 2018, Jeffrey invests $25,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction,...
The Prince-Robbins partnership has the following capital account balances on January 1, 2015:      Prince, Capital...
The Prince-Robbins partnership has the following capital account balances on January 1, 2015:      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, 2015, Jeffrey invests $61,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After...
Following are the capital account balances for the William, Jennings, and Bryan partnership: William (45% of...
Following are the capital account balances for the William, Jennings, and Bryan partnership: William (45% of gains and losses) $ 160,000 Jennings (45%) 110,000 Bryan (10%) 90,000 Darrow invests $250,000 in cash for a 30 percent ownership interest. The money goes to the business. No goodwill or other revaluation is to be recorded. After the transaction, what is Jennings’s capital balance? Multiple Choice $130,100 $140,150 $185,000 $110,000
The capital account balances for Dina & Hanan partnership on January 1, 2018, were as follows:...
The capital account balances for Dina & Hanan partnership on January 1, 2018, were as follows: Dina Capital $200,000 Hanan Capital $100,000 Dina and Hanan shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit Maya to the partnership with a 35% interest in partnership capital and net income. Maya invested $100,000 cash, and no goodwill was recognized. What is the balance of Dina's capital account after the new partnership is created? A.   $140,000...
At year-end, the Circle City partnership has the following capital balances: Manning, Capital $ 170,000 Gonzalez,...
At year-end, the Circle City partnership has the following capital balances: Manning, Capital $ 170,000 Gonzalez, Capital 150,000 Clark, Capital 120,000 Freeney, Capital 110,000 Profits and losses are split on a 3:3:2:2 basis, respectively. Clark decides to leave the partnership and is paid $138,000 from the business based on the original contractual agreement. The payment made to Clark beyond his capital account was for Clark's share of previously unrecognized goodwill. After recognizing partnership goodwill, what is Manning’s capital balance after...
At year-end, the Circle City partnership has the following capital balances: Manning, Capital $ 170,000 Gonzalez,...
At year-end, the Circle City partnership has the following capital balances: Manning, Capital $ 170,000 Gonzalez, Capital 150,000 Clark, Capital 120,000 Freeney, Capital 110,000 Profits and losses are split on a 3:3:2:2 basis, respectively. Clark decides to leave the partnership and is paid $138,000 from the business based on the original contractual agreement. The payment made to Clark beyond his capital account was for Clark's share of previously unrecognized goodwill. After recognizing partnership goodwill, what is Manning’s capital balance after...
Following is the current balance sheet for a local partnership of doctors: Cash and current assets...
Following is the current balance sheet for a local partnership of doctors: Cash and current assets . . . . . . . . . . . . . . . . . . . . . $ 30,000 Land . . . . . . . . . . . . . . . . . . . . . . . 180,000 Building and equipment   (net) . . . . . . . . . . . ....
Following is the current balance sheet for a local partnership of doctors: Cash and current assets...
Following is the current balance sheet for a local partnership of doctors: Cash and current assets $ 64,000 Liabilities $ 66,000 Land 208,000 A, capital 46,000 Building and equipment (net) 168,000 B, capital 66,000 C, capital 116,000 D, capital 146,000 Totals $ 440,000 Totals $ 440,000 The following questions represent independent situations: E is going to invest enough money in this partnership to receive a 20 percent interest. No goodwill or bonus is to be recorded. How much should E...
A partnership begins its first year with the following capital balances: Alfred, Capital $ 36,000 Bernard,...
A partnership begins its first year with the following capital balances: Alfred, Capital $ 36,000 Bernard, Capital 46,000 Collins, Capital 56,000 The articles of partnership stipulate that profits and losses be assigned in the following manner: Each partner is allocated interest equal to 8 percent of the beginning capital balance. Bernard is allocated compensation of $16,000 per year. Any remaining profits and losses are allocated on a 3:3:4 basis, respectively. Each partner is allowed to withdraw up to $5,000 cash...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT