Solution:
A. Journal Entry to record Jeffrey’s entrance into the partnership
Cash A/c Dr. $ 79,000
Goodwill A/c Dr. $ 46,000
To Prince Capital A/c $ 32,200
To Robbins Capital A/c $ 13,800
To Jeffrey’s Capital A/c $ 79,000
(Being Jeffrey’s entrance into partnership has been made)
Working Note: Computation of Goodwill and its appropriation:
Capital required to bring by Jeffrey $ 79,000
Jeffrey’s proposed share in partnership 0.20
Implied Partnership Valuation $ 79,000/ 0.20 = $ 3,95,000
Total Paid-up Capital of Firm $ 140,000+$ 130,000+$ 79,000
= $ 349,000
Goodwill = Implied Firm Valuation – Total Paid-up Capital
= $ 395,000 - $ 349,000
= $ 46,000
B. Allocation of Income at the end of 2018:
Particulars |
Amount ($) |
|
Net Income |
29,000 |
|
Less: Interest Prince Share ($ 140,000 x 9%) Robbins Share ($ 130,000 x 9%) Jeffrey Share ($79,000 x 9%) |
12,600 11,700 7,110 |
(31,410) |
Loss after Interest |
2,410 |
|
Distribution of Loss Prince’s Capital A/c ($ 2,410 x 50%) Robbin’s Capital A/c ($ 2,410 x 30%) Jeffrey’s Capital A/c ($ 2,410 x 20%) |
1,205 723 482 |
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