Question

Fred and Ethel share income equally. During the current year the partnership net income was $40,000. Fred made withdrawals of $12,000 and Ethel made withdrawals of $17,000. At the beginning of the year, the capital account balances were: Fred capital, $42,000; Ethel capital, $58,000. Ethel's capital account balance at the end of the year is

a. $76,500
b. $61,000
c. $62,000
d. $50,000

Answer 1

Ethel's capital account balance at the end of the year is $61,000. This is calculated by adding her share of the net income ($20,000) to her beginning balance ($58,000) and subtracting her withdrawals ($17,000).

Step-by-step explanation:

The student's question deals with calculating Ethel's capital account balance at the end of the year for a partnership where income is shared equally between Fred and Ethel. If the partnership net income was $40,000, and they share income equally, both partners would have earned $20,000 each during the year. Factoring in Ethel's withdrawals and her beginning capital, we calculate Ethel's ending capital account balance as follows:

Beginning balance of Ethel's capital: $58,000
+ Half of the net income: $20,000 (which is $40,000/2)
- Withdrawals by Ethel: $17,000
= Ending balance of Ethel's capital: $61,000

Therefore, Ethel's capital account balance at the end of the year is $61,000.