Question

1/ 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 $129,000, and Atkins' beginning partnership capital balance for the current year is $286,000. The partnership had net income of $306,000 for the year. Barber withdrew $47,000 during the year and Atkins withdrew $120,000. What is Atkins's return on equity?

Multiple Choice

68.3%

48.0%

50.6%

53.5%

25.3%

2/ Hewlett and Martin are partners. Hewlett's capital balance in the partnership is $54,500, and Martin's capital balance $51,500. Hewlett and Martin have agreed to share equally in income or loss. The existing partners agree to accept Black with a 20% interest. Black will invest $36,900 in the partnership. The bonus that is granted to Hewlett and Martin equals:

Multiple Choice

$4,160 each.

$0, because Hewlett and Martin actually grant a bonus to Black.

$1,897 each.

$3,690 each.

1,897 to Hewlett; $1,845 to Martin.

Answer 1

SOLUTION: 1:- atkins capital balance in the beginning of the year=286000

less: drawings made during the year=120000

add: profits from the business=306000/2=153000

net balance as at the year end=319000

return on equity= 153000/ 286000=53.5%

* it is assumed that atkins withdrew his capital at the year end.

SOLUTION 2:-

black share= 20%=1/5

remianing share of a firm=1-1/5=4/5

hewlett new share=1/2*4/5=4/10

martin new share=1/2*4/5=4/10

black share=1/5=2/10

new profit sharing ratio=2:2:1

sacrificing ratio= old - new

hewlett=1/2-2/5=1/10

martin= 1/2-2/5=1/10

black= 0-1/5=(2/10) gain

bonus to hewlett and martin shall be = 36900*1/10=3690 each