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$254,000 $246,000 $238,000 $224,000 $200,000 Cline, Watters, and Nettles formed

ID: 2474008 • Letter: #

Question

       $254,000
       $246,000
       $238,000
       $224,000
       $200,000

Cline, Watters, and Nettles formed a partnership on January 1, 20X1, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to
(1) an interest of 10% of the beginning capital balance each year;
(2) an annual compensation of $10,000 to Watters; and
(3) sharing the remainder of the income or loss in a ratio of 20% for Cline and 40% each for Watters and Nettles.
Net income was $150,000 in 20X1 and $180,000 in 20X2. Each partner withdrew $1,000 for personal use every month during 20X1 and 20X2.
What was Nettles's capital balance at the end of 20X1? (Points : 5)

Explanation / Answer

Calculation of Nettles's capital balance at the end of 20X1:

Schedule of Distribution of Net income :

Cline

Watters

Nettles

Total

Net income

$                   150,000

Interest of 10% of the beginning capital balance

$         10,000

$         15,000

$        20,000

$                     45,000

(100000*10%)

(150000*10%)

(200000*10%)

Annual compensation to Watters

$         10,000

$                     10,000

Remainder of the income

$         19,000

$         38,000

$         38,000

$                     95,000

(95000*20%)

(95000*40%)

(95000*40%)

(150000-45000-10000)

Total Net income Distribution

$         29,000

$         63,000

$         58,000

$                   150,000

Capital Balance :

Nettles

Beginning capital balance

$       200,000

Add: Net income distribution

$         58,000

Less: Withdrawals ($1000*12)

$        (12,000)

Nettles's capital balance at the end of 20X1

$       246,000

Calculation of Nettles's capital balance at the end of 20X1:

Schedule of Distribution of Net income :

Cline

Watters

Nettles

Total

Net income

$                   150,000

Interest of 10% of the beginning capital balance

$         10,000

$         15,000

$        20,000

$                     45,000

(100000*10%)

(150000*10%)

(200000*10%)

Annual compensation to Watters

$         10,000

$                     10,000

Remainder of the income

$         19,000

$         38,000

$         38,000

$                     95,000

(95000*20%)

(95000*40%)

(95000*40%)

(150000-45000-10000)

Total Net income Distribution

$         29,000

$         63,000

$         58,000

$                   150,000

Capital Balance :

Nettles

Beginning capital balance

$       200,000

Add: Net income distribution

$         58,000

Less: Withdrawals ($1000*12)

$        (12,000)

Nettles's capital balance at the end of 20X1

$       246,000