The Prince-Robbins partnership has the following capital account balances on January 1, 2015:
Prince, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70,000
Robbins, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
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.
a. Prepare the journal entry to record Jeffrey’s entrance into the partnership on January 2, 2015.
b. Determine the allocation of income at the end of 2015.