Question

The Prince-Robbins partnership has the following capital account balances on January 1, 2015: LO 14-9 Prince is allocated 80 percent of all profits and losses with the remaining 20 percent assigned to Robbins after interest of 10 percent is given to each partner based on beginning capital balances. On January 2, 2015, Jeffrey invests $37,000 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 2015, the partnership reports a net income of $15,000.

Answer 1

Journal Entry
Date	Account Tittle & Explanation	Debit	Credit
02/01/2015	Goodwill	$18,000
	P's Capital ($18000*80%)		$14,400
	R's Capital ($18000*20%)		$3,600
	To record Distribution of Goodwill
02/01/2015	Cash	$37,000
	J Capital		$37,000
	To Record Capital Contribution of Jeffrey's

b.	Calculation of allocation of incomeat the end of 2015
	Particulars	P	R	J	Total
	Capital****	70000	60000	0	130000
Add:	Allocation of Goodwill & Capital Invest by J	14400	3600	0	18000
Add:	Capital Brought by J	0	0	37000
	Total Capital (a)	84400	63600	37000	148000
	Net Income duriing the year (b)				15000
	Interest on Capital @10% ( C)=(a)*10%	8440	6360	3700	18500
Add:	Allocation of Loss($15000-$18500) (d) in the Ratio of 50:30:20	-1750	-1050	-700	-3500
	Total Allocation of Income	6690	5310	3000	15000

**** Capital BAlance of Existing partner not provided. hence it may assumed and used to calculate interest on capital. however, same question i had solved earlier, that's why i have taken the amount such figure. If you are having different figure, you can use it.

Working Note

Calculation of Good will of Business

Value of Business=Capital Contributionof J/20%

=$37000/20%=$185000

Total Capital=Capital of P+Capital of R+Capital of J

=$70000+$60000+$37000=$167000

Goodwill=Value of Business-Total Capital

=$185000-$167000=$18000