Problem 14-20 (LO 14-9) The Prince-Robbins partnership has the following capital
ID: 2471274 • Letter: P
Question
Problem 14-20 (LO 14-9)
The Prince-Robbins partnership has the following capital account balances on January 1, 2015
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, 2015, Jeffrey invests $43,000 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%), Robbins (30%), and Jeffrey (20%). In 2015, the partnership reports a net income of $12,000.
Prepare the journal entry to record Jeffrey entrance into the partnership on January 2, 2015.
The Prince-Robbins partnership has the following capital account balances on January 1, 2015
Explanation / Answer
Answer
Answer a
Figures in $
Particulars
Amount
Jeffrey's capital contribution
a
43000
Partnership interest of Jeffrey
b
0.2
Total capital of partnership (a/b)
c
215000
Capital of Prince
d
80000
Capital of Robbins
e
70000
capital of Jeffrey
f
43000
Goodwill ( c-d-e-f)
22000
The journal entry to record Jeffrey entrance into the partnership on January 2, 2015.
1. Cash A/c Dr. $ 43000
To Jeffrey's capital A/c Cr. 43000
2. Good will A/c Dr. $ 22000
To Prince Capital A/c Cr. $ 15400 ($ 22000 * 0.7)
To Robbins Capital A/c Cr. $ 6600 ($22000 * 0.3)
Figures in $
Particulars
Amount
Jeffrey's capital contribution
a
43000
Partnership interest of Jeffrey
b
0.2
Total capital of partnership (a/b)
c
215000
Capital of Prince
d
80000
Capital of Robbins
e
70000
capital of Jeffrey
f
43000
Goodwill ( c-d-e-f)
22000