Question

Carter Pearson is a partner in Event Promoters. His beginning partnership capital balance for the current year is $55,500, and his ending partnership capital balance for the current year is $62,500. His share of this year's partnership income was $5,750. What is his partner return on equity?

a. 9.65%
b. 9.75%
c. 10.87%
d. 9.20%
e. 10.36%

Answer 1

b. 9.75%

Step-by-step explanation:

When a partner invests in a business, he/she expects to get return on his equity in the business. The major reason for this is to compare his/her return in the partnership business with the return he/she could get elsewhere.

The return on partner equity is calculated by dividing his/her net income from the partnership business by his/her average capital for the period.

The formula is given below:

Net income x 100

Average capital

Average capital = Opening capital balance + Closing capital balance

2

For Carter Pearson, the average capital is = $55,500 + $62,500

2

= $59,000

The return on equity will be: $5,750 x 100

$59,000

= 9.7457

= 9.75% - approximate to two decimal point.