Answered Essay: interest of 7 percent is given to each partner based on beginning

ter 9 homework Help Save & Exit Check m Prince, Capital Robbins, Capital $105, 000 95, 000 Prince is allocated 60 percent of all profts and losses with the remaining 40 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 $58,000 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 f Prince (50 percent), Robbins (30 percent), and Jeffrey (20 percent, In 2018, the partnership reports a net income of $18 ook nt a Prepare thejournal entry to record Jefreys entrance into the partnership on January 2,2018. b. Determine the allocation of income at the end of 2018. Complete this question by entering your answers In the tabs below Required A Required B Determine the allocation of income at the end of 2018 $ 9,600 $ 3,840 < Prey 2 of 7 Next >

Prince is allocated 60 percent of all profits and losses with the remaining 40 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 $58,000 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 $18,000. a. Prepare the journal entry to record Jeffrey’s entrance into the partnership on January 2, 2018. b. Determine the allocation of income at the end of 2018. Determine the allocation of income at the end of 2018.

Expert Answer

 

Answer a.
Journal Entry
Date Particulars Dr. Amt. Cr. Amt.
a (1) Goodwill                                  Dr.      32,000.00
To Prince Capital Account    19,200.00
To Robbin Capital Account    12,800.00
a (2) Cash                                            Dr.      58,000.00
To Jeffrey Capital Account    58,000.00
Total Capital After Jeffrey Admission = $105,000 + $95,000 + $58,000
Total Capital After Sergio Admission = $258,000
Implied Value of Business (based on new investment) = 58,000 / 20% = $290,000
So, Goodwill of $32,000 ($290,000 – $258,000) should be recognized and divided beween the old partners in their old Profit sharing ratio
Prince Capital Account = $32,000 X 60% = $19,200
Robbins Capital Account   = $32,000 X 40% = $12,800
Answer b.
Allocation of Income
Prince Robbins Jeffrey Total
Interest Paid               8,694            7,546          4,060          20,300
Balance Profit – 50:30:20            (1,150)              (690)           (460)          (2,300)
Total               7,544            6,856          3,600          18,000
Interest Paid on Capital:
Prince – $124,200 X 7%               8,694
Robbins – $107,800 X 7%               7,546
Jeffrey – $58,000 X 7%               4,060
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