The Prince-Robbins partnership has the following capital account balances on January 1, 2018:
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, 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 $28,000.
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.
total capital of firm taking jeffrey's capital as base = $88000*100/20 = $440000
total capital less jeffrey's capital less prince's capital less robbin's capital = goodwill amount
$440000 - ($88000) - (155000) - (145000) = $52000
This goodwill amount has to be allocated to robbin and prince in their profit and loss ratio.
the entry will be - goodwill A/c ...........dr $52000
To robbin's capital $15600
To prince's capital $36400
Jeffrey’s entrance into the partnership - Cash A/c ........dr $88000
To jeffrey's capital A/c $88000
Allocation of income
Profit/loss A/c ............Dr $28000
To robbin's capital $8400
To prince's capital $14000
To jeffrey's capital $5600
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