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 \$ 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, 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

#### Earn Coins

Coins can be redeemed for fabulous gifts.