$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
(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
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