Question

23. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013.

What was Wasser's total share of net income for 2012?
A. $63,000.
B. $53,000.
C. $58,000.
D. $29,000.
E. $51,000.

Answer 1

A. $63,000.

Step-by-step explanation:

The computation of Wasser total share of net income is shown below:

= Annual compensation + interest on capital + share of net income

where,

annual compensation is $10,000

Interest on capital = capital × rate = $150,000 × 10% = $15,000

And, the share of net income equals to

= Net income - total interest on capital - wasser compensation

= $150,000 - 10% × ($100,000 + $150,000 + $200,000) - $10,000

= $150,000 - $45,000 - $10,000

= $95,000

Now put these values to the above formula

So, the answer would be equal to

= $10,000 + $15,000 + 40% × $95,000

= $25,000 + $38,000

= $63,000