Question

Barber and Atkins are partners in an accounting firm and sharenet income and loss equally. Barber's beginning partnership capitalbalance for the current year is $285,000, and Atkins' beginningpartnership capital balance for the current year is $370,000. Thepartnership had net income of $250,000 for the year. Barberwithdrew $90,000 during the year and Atkins withdrew $100,000.

Whatis Atkins's return on equity?

a.41.3%

b.43.9%

c.32.7%

d.33.8%

e.36.5%

Answer 1

correct option is e. 36.5%

Step-by-step explanation:

given data

Barber's capital balance = $285,000

Atkins capital balance = $370,000

net income = $250,000

Barber withdrew = $90,000

Atkins withdrew = $100,000

solution

we get here first beginning total capital balance that is

beginning total capital balance = $285,000 + $370,000

beginning total capital balance = $655,000

and

here Total drawings is = $90,000 + $100,000

Total drawings is $190,000

so

ending total capital will be as

ending total capital = beginning total capital balance + net income - Total drawings ............1

ending total capital = $655,000 + $250,000 - $190,000

ending total capital = $715000

and

Average capital will be

Average capital = ( beginning total capital + ending total capital ) ÷ 2

Average capital =
`(655000+715000)/(2)`

Average capital = $685,000

so here Return on equity will be as

Return on equity = Net Income ÷ Average Capital ..............2

Return on equity =
`(250000)/(685000)` × 100

Return on equity = 36.50 %

so correct option is e. 36.5%