Question

89. Barber and Atkins are partners in an accounting firm and share net income and loss equally. Barber's beginning partnership capital balance for the current year is $203,000, and Atkins' beginning partnership capital balance for the current year is $351,000. The partnership had net income of $107,000 for the year. Barber withdrew $53,000 during the year and Atkins withdrew $25,000. What is Barber's return on equity?

89B. Wallace and Simpson formed a partnership with Wallace contributing $60,000 and Simpson contributing $40,000. Their partnership agreement calls for the income (loss) division to be based on the ratio of capital investments. The partnership had income of $120,000 for its first year of operation. When the Income Summary is closed, the journal entry to allocate partner income is: (Do not round intermediate calculations.)

89C. Bloom and Plant organize a partnership on January 1. Bloom's initial investment consists of $600 cash, $1,900 equipment and a $500 note payable reflecting a bank loan for the new business. Plant's initial investment is cash of $3,000. These amounts are the values agreed on by both partners. The journal entry to record Plant's investment is:

Answer 1

89B.

Income summary	120000
Wallace Capital		72000
Simpson Capital		48000

Here , Wallace contributes = $60000 and Simpson contributes = $40000 .

i.e, 60000 : 40000 = 3 : 2

Therefore, Wallace = $120000 / 5 * 3 = $72000 , Simpson = $120000 / 5 * 2 = $48000 .

89C.

Cash	3000
Plant Capital		3000

89A.

	Atkins	Barber
Beginning Capital	351000	203000
LESS : Withdrawal	25000	53000
ADD : Closing Capital *	? 379500	? 203500
Net Income	53500	53500
* Closing Capital = Beginning balance - Withdrawal + Net income	351000 - 25000 + 53500 = $379500	203000 - 53000 + 53500 = $203500

Since Barber and Atkins shares net income and loss equally , $107000 / 2 = $53500 net income to each.

Barber's Return on Equity = Net income / Average of share equity

Average of share equity = beginning balance + ending balance / 2 = $203000 + $203500 / 2 = $203250.

Barber's ROE = $53500 / $203250 = 26.322 = 26%